Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
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Maryland
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52-1145429 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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Terra Centre |
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P.O. Box 6000 |
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600 Fourth Street
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51102-6000 |
Sioux City, Iowa
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(Zip Code) |
(Address of principal executive offices) |
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Registrants telephone number, including area code: (712) 277-1340
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No þ
At the close of business on October 24, 2008 the following shares of the registrants
stock were outstanding:
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Common Shares, without par value
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102,131,215 shares |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TERRA INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
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September 30, |
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December 31, |
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September 30, |
|
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2008 |
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2007 |
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2007 |
|
Assets |
|
|
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|
|
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|
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Cash and cash equivalents |
|
$ |
680,666 |
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$ |
698,238 |
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$ |
360,478 |
|
Accounts receivable, less allowance for
doubtful accounts of $316, $264 and $326 |
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235,587 |
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|
171,183 |
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|
159,660 |
|
Inventories |
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|
175,920 |
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|
129,321 |
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|
|
123,950 |
|
Margin deposits with derivative counterparties |
|
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132,058 |
|
|
|
638 |
|
|
|
538 |
|
Other current assets |
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|
62,193 |
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|
28,195 |
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|
12,503 |
|
Current assets held for sale
discontinued operations (Note 2) |
|
|
45,607 |
|
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|
2,335 |
|
|
|
2,475 |
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|
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Total current assets |
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|
1,332,031 |
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|
1,029,910 |
|
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|
659,604 |
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|
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Property, plant and equipment, net |
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407,037 |
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|
389,728 |
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|
392,891 |
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Equity method investments |
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382,606 |
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|
351,986 |
|
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|
369,605 |
|
Deferred plant turnaround costs, net |
|
|
29,303 |
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|
|
42,190 |
|
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|
35,029 |
|
Other assets |
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|
31,965 |
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|
|
31,484 |
|
|
|
20,335 |
|
Noncurrent assets held for sale
discontinued operations (Note 2) |
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|
|
|
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|
43,029 |
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|
43,029 |
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|
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Total assets |
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$ |
2,182,942 |
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$ |
1,888,327 |
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$ |
1,520,493 |
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Liabilities |
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Accounts payable |
|
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124,138 |
|
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|
110,687 |
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80,293 |
|
Customer prepayments |
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|
195,039 |
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|
299,351 |
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|
85,313 |
|
Derivative hedge liabilities |
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218,652 |
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|
14,733 |
|
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|
26,167 |
|
Accrued and other current liabilities |
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|
113,042 |
|
|
|
87,922 |
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|
65,354 |
|
Current liabilities held for sale
discontinued operations (Note 2) |
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|
2,749 |
|
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|
4,993 |
|
|
|
4,833 |
|
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|
|
|
|
|
|
|
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Total current liabilities |
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653,620 |
|
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|
517,686 |
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|
261,960 |
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|
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|
|
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Long-term debt |
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330,000 |
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|
330,000 |
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|
330,000 |
|
Deferred taxes |
|
|
53,135 |
|
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|
99,854 |
|
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|
49,691 |
|
Pension liabilities |
|
|
10,018 |
|
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|
9,268 |
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|
38,041 |
|
Other liabilities |
|
|
78,779 |
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|
84,876 |
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|
88,342 |
|
Minority interest |
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|
105,456 |
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|
109,729 |
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|
102,854 |
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Noncurrent liabilities held for sale
discontinued operations (Note 2) |
|
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|
739 |
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1,849 |
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Total liabilities and minority interest |
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1,231,008 |
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1,152,152 |
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872,737 |
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Preferred Shares liquidation value of $2,100; $120,000 and
$120,000 (Note 7) |
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2,027 |
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115,800 |
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115,800 |
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Common Stockholders Equity |
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Capital stock |
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Common Shares, authorized 133,500 shares;
102,081; 89,587 and 89,501 outstanding |
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154,866 |
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142,170 |
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|
142,069 |
|
Paid-in capital |
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625,058 |
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|
618,874 |
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617,085 |
|
Accumulated other comprehensive loss |
|
|
(183,607 |
) |
|
|
(45,328 |
) |
|
|
(63,480 |
) |
Retained earnings (accumulated deficit) |
|
|
353,590 |
|
|
|
(95,341 |
) |
|
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(163,718 |
) |
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|
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|
Total stockholders equity |
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|
949,907 |
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|
620,375 |
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531,956 |
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Total liabilities and stockholders equity |
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$ |
2,182,942 |
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$ |
1,888,327 |
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$ |
1,520,493 |
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See Accompanying Notes to the Consolidated Financial Statements.
3
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenues |
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Product revenues |
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$ |
788,272 |
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$ |
577,916 |
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$ |
2,198,398 |
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$ |
1,768,377 |
|
Other income |
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|
1,942 |
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|
|
2,560 |
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|
9,617 |
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|
5,558 |
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Total revenues |
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790,214 |
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580,476 |
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2,208,015 |
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1,773,935 |
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Costs and Expenses |
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Cost of sales |
|
|
578,310 |
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|
441,863 |
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1,532,369 |
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|
1,396,480 |
|
Selling, general and administrative expense |
|
|
18,301 |
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|
|
21,936 |
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|
58,238 |
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|
67,187 |
|
Equity earnings of unconsolidated
affiliates (Note 10) |
|
|
(15,857 |
) |
|
|
(5,566 |
) |
|
|
(45,665 |
) |
|
|
(10,379 |
) |
|
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|
|
|
|
|
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|
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|
Total cost and expenses |
|
|
580,754 |
|
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|
458,233 |
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1,544,942 |
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1,453,288 |
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Income from operations |
|
|
209,460 |
|
|
|
122,243 |
|
|
|
663,073 |
|
|
|
320,647 |
|
Interest income |
|
|
5,409 |
|
|
|
4,709 |
|
|
|
19,330 |
|
|
|
11,078 |
|
Interest expense |
|
|
(6,773 |
) |
|
|
(6,905 |
) |
|
|
(20,587 |
) |
|
|
(22,685 |
) |
Loss on early retirement of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and
minority interest |
|
|
208,096 |
|
|
|
120,047 |
|
|
|
661,816 |
|
|
|
270,204 |
|
Income tax provision |
|
|
(63,169 |
) |
|
|
(40,654 |
) |
|
|
(229,742 |
) |
|
|
(87,390 |
) |
Minority interest |
|
|
(15,748 |
) |
|
|
(11,144 |
) |
|
|
(52,369 |
) |
|
|
(33,720 |
) |
Equity earnings of unconsolidated
affiliates (Note 10) |
|
|
42,091 |
|
|
|
2,202 |
|
|
|
88,986 |
|
|
|
2,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
171,270 |
|
|
|
70,451 |
|
|
|
468,691 |
|
|
|
151,296 |
|
Income (loss) from discontinued operations,
net of tax (Note 2) |
|
|
141 |
|
|
|
(16,071 |
) |
|
|
7,612 |
|
|
|
(19,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
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|
Net income |
|
|
171,411 |
|
|
|
54,380 |
|
|
|
476,303 |
|
|
|
132,244 |
|
Inducement payment of preferred stock conversion |
|
|
(5,248 |
) |
|
|
|
|
|
|
(5,248 |
) |
|
|
|
|
Preferred share dividends |
|
|
(1,275 |
) |
|
|
(1,275 |
) |
|
|
(3,825 |
) |
|
|
(3,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Available to Common Stockholders |
|
$ |
164,888 |
|
|
$ |
53,105 |
|
|
$ |
467,230 |
|
|
$ |
128,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic |
|
|
94,259 |
|
|
|
90,092 |
|
|
|
91,821 |
|
|
|
91,143 |
|
Diluted |
|
|
104,605 |
|
|
|
105,946 |
|
|
|
104,851 |
|
|
|
106,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Earnings per share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.75 |
|
|
$ |
0.77 |
|
|
$ |
5.01 |
|
|
$ |
1.62 |
|
Income (loss) from discontinued
operations (Note 2) |
|
|
|
|
|
|
(0.18 |
) |
|
|
.08 |
|
|
|
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.75 |
|
|
$ |
0.59 |
|
|
$ |
5.09 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
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|
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|
Earnings per share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.64 |
|
|
$ |
0.66 |
|
|
$ |
4.47 |
|
|
$ |
1.41 |
|
Income (loss) from discontinued
operations (Note 2) |
|
|
|
|
|
|
(0.15 |
) |
|
|
.07 |
|
|
|
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1.64 |
|
|
$ |
0.51 |
|
|
$ |
4.54 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
4
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
476,303 |
|
|
$ |
132,244 |
|
Income (loss) from discontinued operations |
|
|
7,612 |
|
|
|
(19,052 |
) |
|
|
|
|
|
|
|
Income from continuing operations |
|
|
468,691 |
|
|
|
151,296 |
|
Adjustments to reconcile income from continuing operations
to net cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment and
amortization of deferred plant turnaround costs |
|
|
58,406 |
|
|
|
75,025 |
|
Loss on sale of property, plant and equipment |
|
|
2,235 |
|
|
|
|
|
Deferred income taxes |
|
|
(51,772 |
) |
|
|
61,629 |
|
Minority interest in earnings |
|
|
52,369 |
|
|
|
33,720 |
|
Distributions in excess of equity earnings |
|
|
2,524 |
|
|
|
5,121 |
|
Equity earnings GrowHow UK Limited |
|
|
(88,986 |
) |
|
|
(2,202 |
) |
Non-cash (gain) loss on derivatives |
|
|
(1,610 |
) |
|
|
176 |
|
Share-based compensation |
|
|
10,333 |
|
|
|
16,838 |
|
Amortization of intangible and other assets |
|
|
6,193 |
|
|
|
6,655 |
|
Non-cash loss on early retirement of debt |
|
|
|
|
|
|
4,662 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(65,639 |
) |
|
|
(29,137 |
) |
Inventories |
|
|
(42,221 |
) |
|
|
49,473 |
|
Accounts payable and customer prepayments |
|
|
(90,559 |
) |
|
|
(25,023 |
) |
Margin deposits with derivative counterparties |
|
|
(131,420 |
) |
|
|
(501 |
) |
Other assets and liabilities, net |
|
|
67,471 |
|
|
|
19,433 |
|
|
|
|
|
|
|
|
Net cash flows from operating activities continuing operations |
|
|
196,015 |
|
|
|
367,165 |
|
Net cash flows from operating activities discontinued operations |
|
|
9,439 |
|
|
|
14,572 |
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
|
205,454 |
|
|
|
381,737 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures and plant turnaround expenditures |
|
|
(70,123 |
) |
|
|
(59,109 |
) |
Cash retained by GrowHow UK Limited |
|
|
|
|
|
|
(17,249 |
) |
Proceeds from sale of property, plant and equipment |
|
|
1,660 |
|
|
|
|
|
Distributions received from unconsolidated affiliates |
|
|
7,196 |
|
|
|
|
|
Contribution settlement received from GrowHow UK Limited |
|
|
27,427 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities continuing operations |
|
|
(33,840 |
) |
|
|
(76,358 |
) |
Net cash flows from investing activities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
|
(33,840 |
) |
|
|
(76,358 |
) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
|
|
|
|
330,000 |
|
Payments under borrowing arrangements |
|
|
|
|
|
|
(331,300 |
) |
Payments for debt issuance costs |
|
|
|
|
|
|
(6,403 |
) |
Preferred share dividends paid |
|
|
(3,825 |
) |
|
|
(3,825 |
) |
Inducement payment to preferred stockholders |
|
|
(5,248 |
) |
|
|
|
|
Common stock dividends paid |
|
|
(18,299 |
) |
|
|
|
|
Common stock issuances and vestings |
|
|
(9,839 |
) |
|
|
89 |
|
Excess tax benefits from equity compensation plans |
|
|
12,122 |
|
|
|
|
|
Payments under share repurchase program |
|
|
(107,500 |
) |
|
|
(87,426 |
) |
Distributions to minority interests |
|
|
(56,642 |
) |
|
|
(25,554 |
) |
|
|
|
|
|
|
|
Net cash flows from financing activities continuing operations |
|
|
(189,231 |
) |
|
|
(124,419 |
) |
Net cash flows from financing activities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Consolidated Statements of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
|
(189,231 |
) |
|
|
(124,419 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
45 |
|
|
|
501 |
|
|
|
|
|
|
|
|
Increase (decrease) to cash and cash equivalents |
|
|
(17,572 |
) |
|
|
181,461 |
|
Cash and cash equivalents at beginning of period |
|
|
698,238 |
|
|
|
179,017 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
680,666 |
|
|
$ |
360,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
23,975 |
|
|
$ |
22,900 |
|
Income tax refunds received |
|
$ |
206 |
|
|
$ |
555 |
|
Income taxes paid |
|
$ |
197,239 |
|
|
$ |
8,743 |
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and
financing activities: |
|
|
|
|
|
|
|
|
Conversion of warrants to common stock |
|
$ |
2,496 |
|
|
$ |
568 |
|
|
|
|
|
|
|
|
Supplemental schedule of unconsolidated affiliates
distributions received: |
|
|
|
|
|
|
|
|
Equity earnings of unconsolidated affiliates |
|
$ |
45,665 |
|
|
$ |
10,379 |
|
Distribution more than equity earnings |
|
|
2,524 |
|
|
|
5,121 |
|
Distributions received from unconsolidated affiliates |
|
|
7,196 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash distributions received from
unconsolidated affiliates |
|
$ |
55,385 |
|
|
$ |
15,500 |
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
6
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
(Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Deficit) |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
Comprehensive |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Total |
|
|
Income |
|
Balance at January 1, 2008 |
|
$ |
142,170 |
|
|
$ |
618,874 |
|
|
$ |
(45,328 |
) |
|
$ |
(95,341 |
) |
|
$ |
620,375 |
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,303 |
|
|
|
476,303 |
|
|
$ |
476,303 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
(30,356 |
) |
|
|
|
|
|
|
(30,356 |
) |
|
|
(30,356 |
) |
Change in fair value of
derivatives, net of taxes
of $69,651 |
|
|
|
|
|
|
|
|
|
|
(107,923 |
) |
|
|
|
|
|
|
(107,923 |
) |
|
|
(107,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
338,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,825 |
) |
|
|
(3,825 |
) |
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,299 |
) |
|
|
(18,299 |
) |
|
|
|
|
Shares repurchased and retired
under the share repurchase
program |
|
|
(2,588 |
) |
|
|
(104,912 |
) |
|
|
|
|
|
|
|
|
|
|
(107,500 |
) |
|
|
|
|
Excess tax benefit |
|
|
|
|
|
|
14,603 |
|
|
|
|
|
|
|
|
|
|
|
14,603 |
|
|
|
|
|
Exercise of stock options |
|
|
11 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
Net vested stock |
|
|
475 |
|
|
|
(12,897 |
) |
|
|
|
|
|
|
|
|
|
|
(12,422 |
) |
|
|
|
|
Conversion of warrants |
|
|
2,961 |
|
|
|
(413 |
) |
|
|
|
|
|
|
|
|
|
|
2,548 |
|
|
|
|
|
Inducement of preferred stock |
|
|
11,837 |
|
|
|
101,936 |
|
|
|
|
|
|
|
(5,248 |
) |
|
|
108,525 |
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
7,844 |
|
|
|
|
|
|
|
|
|
|
|
7,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2008 |
|
$ |
154,866 |
|
|
$ |
625,058 |
|
|
$ |
(183,607 |
) |
|
$ |
353,590 |
|
|
$ |
949,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Accumulated |
|
|
|
|
|
|
Comprehensive |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Total |
|
|
Income |
|
Balance at January 1, 2007 |
|
$ |
144,976 |
|
|
$ |
693,896 |
|
|
$ |
(63,739 |
) |
|
$ |
(292,137 |
) |
|
$ |
482,996 |
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,244 |
|
|
|
132,244 |
|
|
$ |
132,244 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
(42,361 |
) |
|
|
|
|
|
|
(42,361 |
) |
|
|
(42,361 |
) |
Change in fair value of
derivatives, net of taxes
of $1,381 |
|
|
|
|
|
|
|
|
|
|
(2,565 |
) |
|
|
|
|
|
|
(2,565 |
) |
|
|
(2,565 |
) |
Pension and post retirement
benefit liabilities |
|
|
|
|
|
|
|
|
|
|
1,913 |
|
|
|
|
|
|
|
1,913 |
|
|
|
1,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
89,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of UK pension plan
to GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
43,272 |
|
|
|
|
|
|
|
43,272 |
|
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,825 |
) |
|
|
(3,825 |
) |
|
|
|
|
Exercise of stock options |
|
|
252 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
572 |
|
|
|
|
|
Net vested stock |
|
|
273 |
|
|
|
(757 |
) |
|
|
|
|
|
|
|
|
|
|
(484 |
) |
|
|
|
|
Conversion of warrants |
|
|
568 |
|
|
|
(568 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased and retired
under the share repurchase
program |
|
|
(4,000 |
) |
|
|
(83,426 |
) |
|
|
|
|
|
|
|
|
|
|
(87,426 |
) |
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
7,620 |
|
|
|
|
|
|
|
|
|
|
|
7,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2007 |
|
$ |
142,069 |
|
|
$ |
617,085 |
|
|
$ |
(63,480 |
) |
|
$ |
(163,718 |
) |
|
$ |
531,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
7
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. |
|
Financial Statement Presentation |
Basis of Presentation
The accompanying unaudited consolidated financial statements and notes thereto contain all
adjustments necessary, in the opinion of management, to summarize fairly the financial
position of Terra Industries Inc. and all majority-owned subsidiaries (Terra, the
Company, our we and us) and the results of operations for the periods presented. All
of these adjustments are of a normal and recurring nature. Because of the seasonal nature
of our operations and effects of weather-related conditions in several of its marketing
areas, results of any interim reporting period should not be considered as indicative of
results for a full year. These statements should be read in conjunction with our 2007
Annual Report on Form 10-K to Stockholders.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, no obligations remain and collectibility is
probable.
Revenues are primarily comprised of sales of our nitrogen-based products, including any
realized hedging gains or losses related to nitrogen product derivatives, and are reduced
by estimated discounts and trade allowances. We classify amounts directly or indirectly
billed to our customers for shipping and handling as revenue.
Cost of Sales
Cost of sales are primarily manufacturing costs related to our nitrogen-based products,
including any realized hedging gains or losses related to natural gas derivatives. We
classify amounts directly or indirectly billed for delivery of products to our customers or
our terminals as cost of sales.
Derivatives and Financial Instruments
We enter into derivative financial instruments, including swaps, basis swaps, and options,
to manage the effect of changes in natural gas costs and to manage the prices of our
nitrogen products. We report the fair value of the derivatives on our balance sheet. If the
derivative is not designated as a hedging instrument, changes in fair value are recognized
in earnings in the period of change. If the derivative is designated as a cash flow hedge,
and to the extent such hedge is determined to be effective, changes in fair value are
reported as a component of accumulated other comprehensive income (loss) in the period of
change, and subsequently recognized in cost of sales in the period the offsetting hedged
transaction occurs.
Segment Reporting
We review our reportable industry segments based upon the guidance provided in Statement of
Financial Accounting Standards (SFAS) 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131). The methanol industry segment does not meet the
quantitative thresholds of SFAS 131 because we have reclassified the Beaumont, Texas
related assets and liabilities as held for sale and have included earnings related to these
assets in discontinued operations as
required by SFAS 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS
144). As a wholesale nitrogen producer we are no longer reporting industry segments in a
separate disclosure because the only reportable industry segment is nitrogen.
8
Inventories
Inventories are stated at the lower of average cost or estimated net realizable value. We
perform a monthly analysis of our inventory balances to determine if the carrying amount of
inventories exceeds its net realizable value. The analysis of estimated realizable value is
based on customer orders, market trends, and historical pricing. If the carrying amount
exceeds the estimated net realizable value, the carrying amount is reduced to the estimated
net realizable value.
Production costs include the cost of direct labor and materials, depreciation and
amortization, and overhead costs related to manufacturing activity. The cost of inventories
is determined using the first- in, first-out method.
We estimate a reserve for obsolescence and excess of our materials and supplies inventory.
Inventory is stated net of the reserve.
Plant Turnaround Costs
Plant turnarounds are periodically performed to extend the useful life, increase output
and/or efficiency and ensure the long-term reliability and safety of integrated plant
machinery at our continuous process production facilities. The nature of a turnaround is
such that it occurs on less than an annual basis and requires a multi-week shutdown of
plant operations. Specific procedures performed during the turnaround include the
disassembly, inspection and replacement or overhaul of plant machinery (boilers, pressure
vessels, piping, heat exchangers, etc.) and rotating equipment (compressors, pumps,
turbines, etc.), equipment recalibration and internal equipment efficiency assessments.
Preceding a turnaround, plants experience decreased efficiency in resource conversion to
finished products. Replacement or overhaul of equipment and items such as compressors,
turbines, pumps, motors, valves, piping and other parts that have an estimated useful life
of at least two years, the internal assessment of production equipment, replacement of aged
catalysts, and new installation/recalibration of measurement and control devices result in
increased production output and/or improved plant efficiency after the turnaround.
Turnaround activities are betterments that meet at least one of the following criteria: 1)
extend the equipment useful life, or 2) increase the output and/or efficiency of the
equipment. As a result, we follow the deferral method of accounting for these turnaround
costs and thus they are capitalized and amortized over the period benefited, which is
generally the two-year period until the next turnaround. Turnaround activities may extend
the useful life of the assets since the overhaul of heat exchangers, pressure vessels,
compressors, turbines, pumps, motors, etc. allow the continued use beyond the original
design. If criteria for betterment or useful life extension are not met, we expense the
turnaround expenditures as repair and maintenance activities in the period performed.
In addition, state and certain other regulatory agencies require a scheduled biennial
safety inspection of plant components, such as steam boilers and registered pressure
vessels and piping, which can only be performed during the period of shut down. A full
shutdown and dismantling of components of the plant is generally mandatory to facilitate
the inspection and certification. We defer costs associated with regulatory safety
inspection mandates that are incurred during the turnaround. These costs are amortized over
the period benefited, which is generally the two-year period until the next turnaround.
9
During a turnaround event, there will also be routine repairs and maintenance activities
performed for normal operating purposes. The routine repairs and maintenance costs are
expensed as incurred. We do not classify routine repair and maintenance activities as part
of the turnaround cost capitalization since they are not considered asset betterments.
The installation of major equipment items can occur at any time, but frequently occur
during scheduled plant outages, such as a turnaround. During a plant turnaround,
expenditures for replacing major equipment items are capitalized as separate fixed assets.
Terra classifies capitalized turnaround costs as an investing activity under the caption
Capital expenditures and plant turnaround expenditures in the Statement of Cash Flows, since this cash outflow
relates to expenditures related to productive assets. Repair and maintenance costs are
expensed as incurred and are included in the operating cash flow.
There are three acceptable methods of accounting for turnaround costs: 1) direct expensing
method, 2) built-in overhaul method and 3) deferral method. Terra utilizes the deferral
method and recognizes turnaround expense over the period benefited since these expenditures
are asset betterments. If the direct expense method was utilized, all turnaround
expenditures would be recognized in the income statement as a period cost when incurred and
reflected in cash flows from operating activities in the statement of cash flows.
Impairment of Long-Lived Assets
We review our long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum of the
expected future cash flows expected to result from the use of the asset (undiscounted and
without interest charges) is less than the carrying amount of the asset, an impairment loss
is recognized based on the difference between the carrying amount and the fair value of the
asset.
Use of Estimates in Preparation of the Financial Statements
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
2. |
|
Discontinued Operations |
During 2007, we entered into an agreement for Eastman Chemical Company to purchase our
Beaumont, Texas assets, including the methanol and ammonia production facilities. We
anticipate closing the sale on or before January 1, 2009. In connection with this sales
agreement, we evaluated our Beaumont facility for impairment. We determined that this
facilitys carrying values were impaired and we recorded a $39 million impairment charge in
the third quarter of 2007.
Pursuant to the requirements of SFAS 144, we classified and accounted for certain assets as
held for sale as the anticipated sales date is within one year. SFAS 144 requires that
assets held for sale are valued on an asset-by-asset basis at the lower of carrying amount
or fair value less costs to sell. In applying those provisions, we considered cash flow
analyses, and offers related to those assets. In accordance with the provisions of SFAS
144, assets for sale are not depreciated.
10
Results of the Beaumont operations are reported for all periods presented on a net of tax
basis as discontinued operations. In addition, assets and liabilities of the business held
for sale have been classified as assets and liabilities held for sale in the accompanying
Consolidated Balance Sheets.
Summarized Financial Results of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Operating revenue |
|
$ |
1,770 |
|
|
$ |
13,240 |
|
|
$ |
16,415 |
|
|
$ |
15,882 |
|
Operating and other expenses |
|
|
(1,536 |
) |
|
|
(39,980 |
) |
|
|
(3,750 |
) |
|
|
(47,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) from operations of
discontinued components |
|
|
234 |
|
|
|
(26,740 |
) |
|
|
12,665 |
|
|
|
(31,700 |
) |
Income tax (expense) benefit |
|
|
(93 |
) |
|
|
10,669 |
|
|
|
(5,053 |
) |
|
|
12,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
141 |
|
|
$ |
(16,071 |
) |
|
$ |
7,612 |
|
|
$ |
(19,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The major classes of assets and liabilities held for sale and related to discontinued
operations as of September 30, 2008, December 31, 2007 and September 30, 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2007 |
|
Trade receivables |
|
$ |
333 |
|
|
$ |
45 |
|
|
$ |
245 |
|
Inventory |
|
|
2,203 |
|
|
|
2,203 |
|
|
|
2,203 |
|
Other current assets |
|
|
43,071 |
|
|
|
87 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
45,607 |
|
|
$ |
2,335 |
|
|
$ |
2,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net |
|
$ |
|
|
|
$ |
42,212 |
|
|
$ |
42,212 |
|
Other non-current assets |
|
|
|
|
|
|
817 |
|
|
|
817 |
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
$ |
|
|
|
$ |
43,029 |
|
|
$ |
43,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
739 |
|
|
$ |
18 |
|
|
$ |
4 |
|
Other current liabilities |
|
|
2,010 |
|
|
|
4,975 |
|
|
|
4,829 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
2,749 |
|
|
$ |
4,993 |
|
|
$ |
4,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities |
|
$ |
|
|
|
$ |
739 |
|
|
$ |
1,849 |
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
$ |
|
|
|
$ |
739 |
|
|
$ |
1,849 |
|
|
|
|
|
|
|
|
|
|
|
3. |
|
Income (Loss) Per Share |
Basic income (loss) per share data is based on the weighted-average number of common shares
outstanding during the period. Diluted income (loss) per share data is based on the
weighted-average number of common shares outstanding and the effect of all dilutive
potential common shares including stock options, nonvested shares, convertible preferred
shares and common stock warrants. Nonvested stock carries dividend and voting rights, but
is not included in the weighted average number of common shares outstanding used to compute
basic income (loss) per share since they are contingently returnable.
11
The following table provides a reconciliation between basic and diluted income (loss) per
share for the three- and nine-month periods ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands, except per-share amounts) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Basic income (loss) per share
computation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
171,270 |
|
|
$ |
70,451 |
|
|
$ |
468,691 |
|
|
$ |
151,296 |
|
Less: Preferred share dividends |
|
|
(1,275 |
) |
|
|
(1,275 |
) |
|
|
(3,825 |
) |
|
|
(3,825 |
) |
Inducement of preferred shares |
|
|
(5,248 |
) |
|
|
|
|
|
|
(5,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
available to common Stockholders |
|
|
164,747 |
|
|
|
69,176 |
|
|
|
459,618 |
|
|
|
147,471 |
|
Income (loss) from discontinued operations
available to common stockholders |
|
|
141 |
|
|
|
(16,071 |
) |
|
|
7,612 |
|
|
|
(19,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to
common stockholders |
|
$ |
164,888 |
|
|
$ |
53,105 |
|
|
$ |
467,230 |
|
|
$ |
128,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
94,259 |
|
|
|
90,092 |
|
|
|
91,821 |
|
|
|
91,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share continuing operations |
|
$ |
1.75 |
|
|
$ |
0.77 |
|
|
$ |
5.01 |
|
|
$ |
1.62 |
|
Income (loss) per share
discontinued operations |
|
|
|
|
|
|
(0.18 |
) |
|
|
0.08 |
|
|
|
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
1.75 |
|
|
$ |
0.59 |
|
|
$ |
5.09 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
computation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
available to common stockholders |
|
$ |
164,747 |
|
|
$ |
69,176 |
|
|
$ |
459,618 |
|
|
$ |
147,471 |
|
Add: Preferred share dividends |
|
|
1,275 |
|
|
|
1,275 |
|
|
|
3,825 |
|
|
|
3,825 |
|
Inducement of preferred shares |
|
|
5,248 |
|
|
|
|
|
|
|
5,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders and assumed conversions |
|
$ |
171,270 |
|
|
$ |
70,451 |
|
|
$ |
468,691 |
|
|
$ |
151,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
94,259 |
|
|
|
90,092 |
|
|
|
91,821 |
|
|
|
91,143 |
|
Add incremental shares from
assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
|
8,188 |
|
|
|
12,049 |
|
|
|
10,752 |
|
|
|
12,049 |
|
Non vested stock |
|
|
566 |
|
|
|
985 |
|
|
|
581 |
|
|
|
783 |
|
Common stock warrants |
|
|
1,592 |
|
|
|
2,710 |
|
|
|
1,696 |
|
|
|
2,791 |
|
Common stock options |
|
|
|
|
|
|
110 |
|
|
|
1 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
104,605 |
|
|
|
105,946 |
|
|
|
104,851 |
|
|
|
106,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share continuing operations |
|
$ |
1.64 |
|
|
$ |
0.66 |
|
|
$ |
4.47 |
|
|
$ |
1.41 |
|
Income (loss) per share
discontinued operations |
|
|
|
|
|
|
(0.15 |
) |
|
|
0.07 |
|
|
|
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
1.64 |
|
|
$ |
0.51 |
|
|
$ |
4.54 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
In September 2008 we commenced individual offers (the inducement offer) to pay a cash
premium to holders of the Series A Preferred Shares who elected to convert their Series A
Preferred Shares into shares of Terra Industries common stock (see Note 7.) A total of
117,900 shares or 98% of the outstanding shares of Series A Preferred Shares were
surrendered and converted as part of the inducement offer. The former holders of the Series
A Preferred Shares received, in the aggregate, the following:
|
|
|
11,837,349 shares of Terra Industries common stock; and |
|
|
|
|
A cash premium of approximately $5.2 million |
When convertible preferred stock is converted pursuant to an inducement offer, the excess
of the fair value of the consideration transferred in the transaction to the holders of the
convertible preferred stock over the fair value of the securities issuable pursuant to the
original conversion terms should be subtracted from net income to arrive at net income
applicable to common stockholders in the calculation of earnings per share. As such, the
inducement payments and offering costs paid in connection with the inducement offer
resulted in a reduction of net income available to common stockholders.
For purposes of our computation of diluted net income per common share for the period ended
September 30, 2008, the portion of our Series A Preferred Shares that was converted was
considered separately from the portion of our Series A Preferred Shares that was not
converted. The inducement payment was attributed to the portion of the Series A Preferred
Shares that was converted. As a result, conversion of the portion of the Series A Preferred
Shares that was converted into 11,837,349 weighted average common shares outstanding for
the period ended September 30, 2008 was also not assumed because the resulting impact on
the calculation of diluted net income per common share would have been anti-dilutive. The
portion of our Series A Preferred Shares that was not converted was also not assumed
because the resulting impact on the calculation of diluted net income per common share
would have been anti-dilutive.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2007 |
|
Raw materials |
|
$ |
18,269 |
|
|
$ |
17,765 |
|
|
$ |
19,558 |
|
Supplies |
|
|
33,570 |
|
|
|
35,909 |
|
|
|
34,181 |
|
Finished goods |
|
|
124,081 |
|
|
|
75,647 |
|
|
|
70,211 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
175,920 |
|
|
$ |
129,321 |
|
|
$ |
123,950 |
|
|
|
|
|
|
|
|
|
|
|
Inventory is valued at actual first-in, first-out cost. Costs include raw materials, labor
and overhead.
5. |
|
Derivative Financial Instruments |
We manage risk using derivative financial instruments for changes in natural gas supply
prices and changes in nitrogen prices. Derivative financial instruments have credit risk
and market risk.
To manage credit risk, we enter into derivative transactions only with counter-parties who
are currently rated as BBB or better or equivalent as recognized by a national rating
agency. We will not enter into transactions with a counter-party if the additional
transaction will result in credit exposure
exceeding $20 million. The credit rating of counter-parties may be modified through
guarantees, letters of credit or other credit enhancement vehicles.
13
We classify a derivative financial instrument as a hedge if all of the following conditions
are met:
|
1. |
|
The item to be hedged must expose us to price risk. |
|
|
2. |
|
It must be probable that the results of the hedge position substantially
offset the effects of price changes on the hedged item (e.g., there is a high
correlation between the hedge position and changes in market value of the hedge
item). |
|
|
3. |
|
The derivative financial instrument must be designated as a hedge of the item
at the inception of the hedge. |
Natural gas supplies to meet production requirements at our North American production
facilities are purchased at market prices. Natural gas market prices are volatile and we
effectively fix prices for a portion of our natural gas production requirements and
inventory through the use of swaps, basis swaps and options. The North American contracts
reference physical natural gas prices or appropriate NYMEX futures contract prices.
Contract physical prices for North America are frequently based on prices at the Henry Hub
in Louisiana, the most common and financially liquid location of reference for financial
derivatives related to natural gas. However, natural gas supplies for our North American
production facilities are purchased at locations other than Henry Hub, which often creates
a location basis differential between the contract price and the physical price of natural
gas. Accordingly, the use of financial derivatives may not exactly offset the change in
the price of physical gas. The contracts are traded in months forward and settlement dates
are scheduled to coincide with gas purchases during that future period.
A swap is a financial instrument whereby we agree to pay a counterparty a fixed rate, and
the counterparty pays us a variable rate. Option contracts give the holder the right to
either own or sell a futures or swap contract. The option contracts require initial premium
payments ranging from 2% to 5% of contract value. Basis swap contracts require payments to
or from us for the amount, if any, that monthly published gas prices from the source
specified in the contract differ from the prices of a NYMEX natural gas futures during a
specified period. There are no initial cash requirements related to the swap and basis swap
agreements.
We may also use a collar structure where we will enter into a swap, sell a call at a higher
price and buy a put. The collar structure allows for greater participation in a decrease to
natural gas prices and protects against moderate price increases. However, the collar
exposes us to large price increases. At September 30, 2008 there were no collars
outstanding.
The following summarizes open natural gas derivative contracts at September 30, 2008 and
2007 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Other |
|
|
|
|
|
|
|
|
|
Current |
|
|
Current |
|
|
Deferred |
|
|
Net Asset |
|
(in thousands) |
|
Assets |
|
|
Liabilities |
|
|
Taxes |
|
|
(Liability) |
|
September 30, 2008 |
|
$ |
30,685 |
|
|
$ |
(218,652 |
) |
|
$ |
72,673 |
|
|
$ |
(115,294 |
) |
December 31, 2007 |
|
$ |
4,798 |
|
|
$ |
(14,733 |
) |
|
$ |
3,022 |
|
|
$ |
(6,913 |
) |
September 30, 2007 |
|
$ |
4,732 |
|
|
$ |
(26,167 |
) |
|
$ |
7,754 |
|
|
$ |
(13,681 |
) |
14
Certain derivatives outstanding at September 30, 2008 and 2007, which settled during
October 2008 and 2007, respectively, are included in the position of open natural gas
derivatives in the table above. The October 2008 derivatives settled for an approximate
$42.2 million loss compared to the October
2007 derivatives which settled for an approximate $7.7 million loss. Substantially all open
derivatives will settle during the next twelve months.
We are required to maintain certain margin deposits on account with derivative
counterparties. At September 30, 2008 we had $132.0 million on deposit with counterparties,
which is reported as margin deposits with derivative counterparties on the consolidated balance sheet.
We determined that certain derivative contracts were ineffective hedges for accounting
purposes and recorded a reduction of $1.6 million and a reduction of $1.7 million,
respectively, to cost of sales for the period ending September 30, 2008 and 2007,
respectively.
The effective portion of gains and losses on derivative contracts that qualify for hedge
treatment are carried as accumulated other comprehensive income (loss) and credited or
charged to cost of sales in the month in which the hedged transaction settles. Gains and
losses on the contracts that do not qualify for hedge treatment are credited or charged to
cost of sales based on the positions fair value. The risk and reward of outstanding
natural gas positions are directly related to increases or decreases in natural gas prices
in relation to the underlying NYMEX natural gas contract prices.
The activity to accumulated other comprehensive income (loss), net of income taxes,
relating to current period hedging transactions for the three-month periods ended September
30, 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
(in thousands) |
|
Gross |
|
|
Net of tax |
|
|
Gross |
|
|
Net of tax |
|
Beginning accumulated gain (loss) |
|
$ |
67,130 |
|
|
$ |
41,008 |
|
|
$ |
(28,684 |
) |
|
$ |
(18,644 |
) |
Reclassification into earnings |
|
|
(27,055 |
) |
|
|
(16,478 |
) |
|
|
(31,210 |
) |
|
|
(20,286 |
) |
Net change in market value |
|
|
(226,284 |
) |
|
|
(138,065 |
) |
|
|
37,739 |
|
|
|
24,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending accumulated gain (loss) |
|
$ |
(186,209 |
) |
|
$ |
(113,535 |
) |
|
$ |
(22,155 |
) |
|
$ |
(14,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The activity to accumulated other comprehensive income (loss), net of income taxes,
relating to current period hedging transactions for the nine-month periods ended September
30, 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
(in thousands) |
|
Gross |
|
|
Net of tax |
|
|
Gross |
|
|
Net of tax |
|
Beginning accumulated gain (loss) |
|
$ |
(8,635 |
) |
|
$ |
(5,612 |
) |
|
$ |
(18,210 |
) |
|
$ |
(11,836 |
) |
Reclassification into earnings |
|
|
17,011 |
|
|
|
10,416 |
|
|
|
(31,562 |
) |
|
|
(20,515 |
) |
Net change in market value |
|
|
(194,585 |
) |
|
|
(118,339 |
) |
|
|
27,617 |
|
|
|
17,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending accumulated gain (loss) |
|
$ |
(186,209 |
) |
|
$ |
(113,535 |
) |
|
$ |
(22,155 |
) |
|
$ |
(14,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately $186.2 million of the net accumulated loss at September 30, 2008 will be
reclassified into earnings during the next twelve months as compared to $22.2 million of
the net accumulated loss at September 30, 2007.
15
At times, we also use forward derivative instruments to fix or set floor prices for a
portion of our nitrogen sales volumes. At September 30, 2008, we did not have any open
contracts for nitrogen solutions. When outstanding, the nitrogen solution contracts do not
qualify for hedge treatment due to
inadequate trading history to demonstrate effectiveness. Consequently, these contracts are
marked-to-market and unrealized gains or losses are reflected in revenue in the statement
of operations. For the three- and nine-month periods ending September 30, 2008, there were
no gains or losses on nitrogen forward derivative instruments. For the three- and
nine-month periods ending September 30, 2007, we recognized a loss of $1.0 million and $2.9
million, respectively, on nitrogen forward derivative instruments.
6. |
|
Fair Value Measurements |
On January 1, 2008, we adopted SFAS 157, Fair Value Measurements (SFAS 157), which, among
other things, requires enhanced disclosure of assets and liabilities measured and reported
at fair value. In February 2008, the Financial Accounting Standards Board (FASB) issued
FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which delayed for
one year the applicability of SFAS 157s fair-value measurements to certain nonfinancial
assets and liabilities. We adopted SFAS 157 in 2008, except as it applies to those
nonfinancial assets and liabilities as affected by the one-year delay. The adoption of SFAS
157 did not have a material impact on our financial statements.
SFAS 157 establishes a three level hierarchal disclosure framework that prioritizes and
ranks the level of market price observability used in measuring assets and liabilities at
fair value. Market price observability is impacted by a number of factors, including the
type of asset or liability and its characteristics. Assets and liabilities with readily
available active quoted prices or for which fair value can be measured from actively quoted
prices generally will have a higher degree of market price observability and a lesser
degree of judgment used in measuring fair value.
The three levels are defined as follows:
|
|
|
Level 1 inputs to the valuation methodology are unadjusted quoted prices for
identical assets or liabilities in active markets. |
|
|
|
|
Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument. |
|
|
|
|
Level 3 inputs to the valuation methodology are unobservable and significant
to the fair value measurement. |
We evaluated our assets and liabilities to determine which items should be disclosed
according to SFAS 157. We currently measure our derivative contracts on a recurring basis
at fair value. The inputs included in the fair value measurement of our derivative contract
use adjusted quoted prices from an active market which are classified at level 2 as a
significant other observable input in the disclosure hierarchy framework as defined by SFAS
157.
16
The following table summarizes the valuation of our assets and liabilities in accordance
with SFAS 157 fair value hierarchy levels as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market |
|
|
Significant Other |
|
|
Significant |
|
|
|
Prices in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
30,685 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
30,685 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
(218,652 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(218,652 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The components of preferred shares outstanding at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
Number |
|
|
Carrying |
|
|
Number |
|
|
Carrying |
|
(in thousands) |
|
of shares |
|
|
Value |
|
|
of shares |
|
|
Value |
|
|
Series A Preferred Shares
(120,000 shares authorized,
$1,000 per share liquidation value) |
|
|
2,100 |
|
|
$ |
2,027 |
|
|
|
120,000 |
|
|
$ |
115,800 |
|
We had 2,100 shares of cumulative convertible perpetual Series A Preferred Shares with a
liquidation value of $1,000 outstanding at September 30, 2008 and 120,000 shares with a
liquidation value of $1,000 at September 30, 2007. Cumulative dividends of $10.625 per
share are payable quarterly. The Series A Preferred Shares are not redeemable, but are
convertible into our common stock at the option of the holder for a conversion price of
$9.96 per common share. The Series A shares may automatically be converted to common shares
after December 20, 2009 if the closing price for our common shares exceeds 140% of the
conversion price for twenty days within a consecutive thirty day period prior to such
conversion. Upon the occurrence of a fundamental change to our capital structure, including
a change of control, merger, or sale of Terra, holders of the Series A Preferred Shares may
require us to purchase any or all of their shares at a price equal to their liquidation
value plus any accumulated, but unpaid, dividends. We also have the right, under certain
conditions, to require holders of the Series A Preferred Shares to exchange their shares
for convertible subordinated debentures with similar terms.
In September 2008 we commenced offers (the inducement offer) to pay a cash premium to
holders of the Series A Preferred Shares who elected to convert their Series A Preferred
Shares into shares of Terra Industries common stock. A total of 117,900 shares or 98% of
the outstanding shares of Series A Preferred Shares were surrendered and converted as part
of the inducement offer. The former holders of the Series A Preferred Shares received, in
the aggregate, the following:
|
|
|
11,837,349 shares of Terra Industries common stock; and |
|
|
|
|
A cash premium of approximately $5.2 million |
The $5.2 million inducement offer represents the difference between the fair value of all
securities and other consideration transferred in the transaction to the preferred
stockholders and the fair value of
securities issuable pursuant to the original conversion terms of the Series A Preferred
Shares less the costs related to the inducement offer.
17
The following represents a summary of the deferred plant turnaround costs for the nine
months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnaround |
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
Beginning |
|
|
Costs |
|
|
Turnaround |
|
|
Translation |
|
|
Ending |
|
(in thousands) |
|
Balance |
|
|
Capitalized |
|
|
Amortization |
|
|
Adjustments |
|
|
Balance |
|
Period ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
$ |
42,190 |
|
|
$ |
9,290 |
|
|
$ |
(21,529 |
) |
|
$ |
(648 |
) |
|
$ |
29,303 |
|
9. |
|
Other Liabilities |
|
|
|
Other liabilities consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2007 |
|
Unrecognized tax benefit |
|
$ |
33,560 |
|
|
$ |
33,560 |
|
|
$ |
33,560 |
|
Long-term medical and
closed facility reserve |
|
|
24,529 |
|
|
|
24,368 |
|
|
|
24,026 |
|
Long-term deferred revenue |
|
|
10,863 |
|
|
|
10,885 |
|
|
|
11,229 |
|
Accrued phantom shares |
|
|
3,137 |
|
|
|
9,231 |
|
|
|
11,697 |
|
Long-term retiree medical and
post employment reserve |
|
|
6,196 |
|
|
|
6,112 |
|
|
|
7,099 |
|
Other |
|
|
494 |
|
|
|
720 |
|
|
|
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78,779 |
|
|
$ |
84,876 |
|
|
$ |
88,342 |
|
|
|
|
|
|
|
|
|
|
|
10. |
|
Equity Investments |
|
|
|
Trinidad and United States |
Our investment in companies that are accounted for on the equity method of accounting and
included in operations consist of the following: (1) 50% ownership interest in Point Lisas
Nitrogen Limited, (PLNL) which operates an ammonia production plant in Trinidad (2) 50%
interest in an ammonia storage joint venture located in Houston, Texas and (3) 50% interest
in a joint venture in Oklahoma CO2 at our Verdigris nitrogen plant. These
investments were $144.4 million at September 30, 2008. We include the net earnings of these
investments as an element of income from operations because the investees operations
provide additional capacity to our operations.
18
The combined results of operations and financial position of our equity method investments
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Condensed income statement
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
128,332 |
|
|
$ |
46,844 |
|
|
$ |
310,860 |
|
|
$ |
101,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
46,642 |
|
|
$ |
13,555 |
|
|
$ |
109,563 |
|
|
$ |
23,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terras equity in earnings
of unconsolidated affiliates |
|
$ |
15,857 |
|
|
$ |
5,566 |
|
|
$ |
45,665 |
|
|
$ |
10,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
Condensed balance sheet information: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
94,886 |
|
|
$ |
43,130 |
|
Long-term assets |
|
|
177,882 |
|
|
|
194,310 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
272,768 |
|
|
$ |
237,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
53,457 |
|
|
$ |
24,193 |
|
Long-term liabilities |
|
|
14,766 |
|
|
|
|
|
Equity |
|
|
204,545 |
|
|
|
213,247 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
272,768 |
|
|
$ |
237,440 |
|
|
|
|
|
|
|
|
The carrying value of these investments at September 30, 2008 was $42.1 million more than
our share of the affiliates book value. The excess is attributable primarily to the
step-up in basis for fixed asset values, which is being depreciated over a period of
approximately fifteen years. Our equity in earnings of unconsolidated subsidiaries is
different than our ownership interest in income reported by the unconsolidated subsidiaries
due to deferred profits on intergroup transactions and amortization of basis differences.
We have transactions in the normal course of business with PLNL whereby we are obliged to
purchase 50% of the ammonia produced by PLNL at current market prices. During the
nine-month period ending September 30, 2008, we purchased approximately $135.7 million of
ammonia from PLNL. During the nine-month period ending September 30, 2007, we purchased
approximately $52.7 million of ammonia from PLNL. During the first nine months of 2007,
PLNL performed a turnaround, resulting in lower production levels and consequently, lower
purchases by us.
We received $55.4 million and $15.5 million in distributions from all of our equity
investments in the nine-month periods ending September 30, 2008 and 2007, respectively.
United Kingdom
On September 14, 2007, we completed the formation of GrowHow UK Limited (GrowHow), a joint
venture between us and Kemira GrowHow Oyj (Kemira). Pursuant to the joint venture
agreement, we contributed our United Kingdom subsidiary, Terra Nitrogen (UK) Limited, to
the joint venture for a 50% interest. Subsequent to September 14, 2007, we have accounted
for our investment in GrowHow as an equity method investment. This investment was $238.2
million at September 30, 2008.
19
Our interest in the joint venture is classified as a non-operating equity investment. We do
not include the net earnings of this investment as an element of income from operations
since GrowHows operations do not provide additional capacity to us, nor are its operations
integrated with our supply chain in North America.
The nine-month results of operations and financial position of our equity method investment
in GrowHow at September 30, 2008 and 2007 were:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Condensed income statement information: |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
914,491 |
|
|
$ |
19,583 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
184,902 |
|
|
$ |
2,908 |
|
|
|
|
|
|
|
|
Terras equity in earnings
of unconsolidated affiliates |
|
$ |
88,986 |
|
|
$ |
2,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed balance sheet information: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
379,078 |
|
|
$ |
241,590 |
|
Long-term assets |
|
|
248,690 |
|
|
|
345,814 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
627,768 |
|
|
$ |
587,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
126,311 |
|
|
$ |
144,198 |
|
Long-term liabilities |
|
|
157,081 |
|
|
|
190,703 |
|
Equity |
|
|
344,376 |
|
|
|
252,503 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
627,768 |
|
|
$ |
587,404 |
|
|
|
|
|
|
|
|
The carrying value of these investments at September 30, 2008 was $66.0 million more than
our share of the affiliates book value. The excess is attributable primarily to the
step-up in basis for fixed asset values, which is being depreciated over a period of
approximately twelve years. Our equity earnings of GrowHow are different than our ownership
interest in GrowHows net income due to the amortization of basis differences.
We contributed Terra Nitrogen (UK) Limited to the joint venture for a 50% interest in the
joint venture, and Kemira contributed its Kemira GrowHow UK Limited subsidiary for the
remaining 50% interest. The GrowHow joint venture in the United Kingdom includes the Kemira
site at Ince and our Teeside and Severnside sites. Pursuant to the GrowHow Agreements with
Kemira, we are eligible to receive a balancing consideration payment from GrowHow in 2011.
We will receive a minimum balancing consideration payment of £20 million, and have the
right to receive up to £60 million, based on GrowHows level of earnings before interest,
taxes, depreciation and amortization (EBITDA) for the years 2008 through 2010.
In January 2008 GrowHow closed the Severnside manufacturing facility. Pursuant to the
agreement with Kemira, we are responsible for any remediation costs required to prepare the
Severnside site for disposal. We anticipate remediation costs to be approximately $5.0
million to $10.0 million. We have an option to purchase the Severnside land for a nominal
amount at any time prior to sale. If we elect not to exercise this option, we are still
entitled to receive the sales proceeds. We anticipate that the proceeds related to the sale
of the Severnside land would exceed the total cost of reclamation of the site.
We received $27.4 million from GrowHow during 2008 for the refund of working capital
contributions in excess of amounts specified in the Joint Venture Contribution Agreement.
There were no distributions from the United Kingdom equity investment since the inception
in 2007.
20
11. |
|
Long-term Debt |
|
|
|
Long-term debt consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2007 |
|
Unsecured Senior Notes, 7.0%
due 2017 |
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
330,000 |
|
|
|
330,000 |
|
|
|
330,000 |
|
Less current maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
|
|
|
|
|
|
|
|
|
In February 2007, Terra Capital, Inc., (TCAPI) a subsidiary of Terra Industries Inc.,
issued $330 million of 7.0% Senior Notes due 2017 to refinance our Senior Secured Notes due
in 2008 and 2010. The notes are unconditionally guaranteed by Terra Industries Inc. and its
U.S. subsidiaries (see Note 17.) These notes and guarantees are unsecured and will rank
equal in right of payment with any existing and future senior obligations of such
guarantors. We recorded a $38.8 million loss on the early retirement of debt.
The Indenture governing these notes contains covenants that limit, among other things, our
ability to: incur additional debt, pay dividends on common stock of Terra Industries Inc.
or repurchase shares of such common stock, make certain investments, sell any of our
principal production facilities or sell other assets outside the ordinary course of
business, enter into transactions with affiliates, limit dividends or other payments by our
restricted subsidiaries, enter into sale and leaseback transactions, engage in other
businesses, sell all or substantially all of our assets or merge with or into other
companies, and reduce our insurance coverage.
We are obligated to offer to repurchase these notes upon a Change of Control (as defined in
the Indenture) at a cash price equal to 101% of the aggregate principal amount outstanding
at that time, plus accrued interest to the date of purchase. The Indenture governing these
notes contains events of default and remedies customary for a financing of this type.
In conjunction with the bond refinancing, we amended the $200 million revolving credit
facility to extend the expiration date to January 31, 2012. The revolving credit facility
is secured by substantially all of our assets. Borrowing availability is generally based on
100% of eligible cash balances, 85% of eligible accounts receivable and 60% of eligible
finished goods inventory less outstanding letters of credit issued under the facility.
These facilities include $50 million only available for the use of Terra Nitrogen Company,
L.P. (TNCLP), one of our consolidated subsidiaries. Borrowings under the revolving credit
facility will bear interest at a floating rate plus an applicable margin, which can be
either a base rate, or, at our option, a London Interbank Offered Rate (LIBOR). At
September 30, 2008, the LIBOR rate was 3.93%. The base rate is the highest of (1) Citibank,
N.A.s base rate (2) the federal funds effective rate, plus one-half percent (0.50%) per
annum and (3) the base three month certificate of deposit rate, plus one-half percent
(0.50%) per annum, plus an applicable margin in each case. LIBOR loans will bear interest
at LIBOR plus an applicable margin. The applicable margins for base rate loans and LIBOR
loans were 0.50% and 1.75%, respectively, at September 30, 2008. The revolving credit
facility requires an initial one-half percent (0.50%) commitment fee on the difference
between committed amounts and amounts actually borrowed.
21
At September 30, 2008, we had no outstanding revolving credit borrowings and $6.6 million
in outstanding letters of credit. The $6.6 million in outstanding letters of credit reduced
our borrowing availability to $193.4 million at September 30, 2008. The credit facilities
require that we adhere to
certain limitations on additional debt, capital expenditures, acquisitions, liens, asset
sales, investments, prepayments of subordinated indebtedness, changes in lines of business
and transactions with affiliates. If our borrowing availability falls below $60 million, we
are required to have achieved minimum operating cash flows or earnings before interest,
income taxes, depreciation, amortization and other non-cash items of $60 million during the
most recent four quarters.
12. |
|
Pension Plans |
|
|
|
We maintain defined benefit and defined contribution pension plans that cover substantially all salaried and hourly
employees. Benefits are based on a pay formula. The defined benefit plans assets consist principally of equity
securities and corporate and government debt securities. We also have certain non-qualified pension plans covering
executives, which are unfunded. We accrue pension costs based upon annual actuarial valuations for each plan and fund
these costs in accordance with statutory requirements. |
|
|
|
The estimated components of net periodic pension expense follow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
778 |
|
|
$ |
748 |
|
|
$ |
2,334 |
|
|
$ |
2,244 |
|
Interest cost |
|
|
4,412 |
|
|
|
6,231 |
|
|
|
13,236 |
|
|
|
18,693 |
|
Expected return on plan assets |
|
|
(4,516 |
) |
|
|
(6,056 |
) |
|
|
(13,548 |
) |
|
|
(18,168 |
) |
Amortization of prior service cost |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(27 |
) |
|
|
(27 |
) |
Amortization of actuarial loss |
|
|
468 |
|
|
|
1,409 |
|
|
|
1,404 |
|
|
|
4,227 |
|
Termination charge |
|
|
|
|
|
|
123 |
|
|
|
|
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense |
|
$ |
1,133 |
|
|
$ |
2,446 |
|
|
$ |
3,399 |
|
|
$ |
7,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash contributions to the defined benefit pension plans for the three months ended
September 30, 2008 and 2007 were $0.5 million and $14.7 million, respectively. Cash
contributions to the defined benefit plans for the nine months ended September 30, 2008 and
2007 were $1.4 and $29.4 million, respectively.
We also sponsor defined contribution savings plans covering most full-time employees.
Contributions made by participating employees are matched based on a specified percentage
of employee contributions. The cost of our contributions to these plans for the three-month
periods ending September 30, 2008 and 2007 were $1.1 million and $1.4 million,
respectively. Contributions to these plans for the nine-month periods ending September 30,
2008 and 2007 were $3.1 and $4.5 million, respectively.
We provide health care benefits for certain U.S. employees who retired on or before January
1, 2002. Participant contributions and co-payments are subject to escalation. The plan pays
a stated percentage of most medical expenses reduced for any deductible and payments made
by government programs. These costs are funded as paid.
22
13. |
|
Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and
losses that under accounting principles generally accepted in the United States are
recorded as an element of stockholders equity but are excluded from net income (loss). Our
accumulated other comprehensive income (loss) is comprised of (a) adjustments that result
from translation of our foreign entity financial statements from their functional
currencies to United States dollars, (b) adjustments that result from translation of
intercompany foreign currency transactions that are of a long-term investment nature (that
is, settlement is not planned or anticipated in the foreseeable future) between entities
that are consolidated in our financial statements, (c) the offset to the fair value of
derivative assets and liabilities (that qualify as a cash flow hedge) recorded on the
balance sheet, and (d) pension and post-retirement benefit liabilities adjustments.
The components of accumulated other comprehensive income (loss), net of tax, for the nine
months ended September 30, 2008 and 2007 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
Pension and Post- |
|
|
|
|
|
|
Translation |
|
|
Fair Value of |
|
|
Retirement Benefit |
|
|
|
|
(in thousands) |
|
Adjustment |
|
|
Derivatives |
|
|
Liabilities |
|
|
Total |
|
|
Balance January 1, 2008 |
|
$ |
(22,364 |
) |
|
$ |
(5,612 |
) |
|
$ |
(17,352 |
) |
|
$ |
(45,328 |
) |
Change in foreign translation
adjustment |
|
|
(30,356 |
) |
|
|
|
|
|
|
|
|
|
|
(30,356 |
) |
Reclassification to earnings |
|
|
|
|
|
|
10,416 |
|
|
|
|
|
|
|
10,416 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
(118,339 |
) |
|
|
|
|
|
|
(118,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2008 |
|
$ |
(52,720 |
) |
|
$ |
(113,535 |
) |
|
$ |
(17,352 |
) |
|
$ |
(183,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2007 |
|
$ |
24,518 |
|
|
$ |
(11,836 |
) |
|
$ |
(76,421 |
) |
|
$ |
(63,739 |
) |
Change in pension and
post-retirement liabilities |
|
|
|
|
|
|
|
|
|
|
1,913 |
|
|
|
1,913 |
|
Transfer of UK pension plan to
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
43,272 |
|
|
|
43,272 |
|
Change in foreign translation
adjustment |
|
|
(42,361 |
) |
|
|
|
|
|
|
|
|
|
|
(42,361 |
) |
Reclassification to earnings |
|
|
|
|
|
|
(20,515 |
) |
|
|
|
|
|
|
(20,515 |
) |
Change in fair value of derivatives |
|
|
|
|
|
|
17,950 |
|
|
|
|
|
|
|
17,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2007 |
|
$ |
(17,843 |
) |
|
$ |
(14,401 |
) |
|
$ |
(31,236 |
) |
|
$ |
(63,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
14. |
|
Commitments and Contingencies |
We are involved in various claims and legal actions arising in the ordinary course of
business. Based on the facts currently available, management believes that the ultimate
disposition of these matters will not have a material adverse effect on our consolidated
financial position, results of operation or liquidity and that the likelihood that a loss
contingency will occur in connection with these claims is remote.
We have entered into physical natural gas supply agreements through June 2009 for
approximately 35.1 million MMBtus. As of September 30, 2008, these natural gas
commitments were $1.9 million above the respective index prices.
23
15. |
|
New Accounting Pronouncements |
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141R,
Business Combinations (SFAS 141R), which changes the way we account for business
acquisitions. SFAS 141R requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the transaction and
establishes the acquisition-date fair value as the measurement objective for all assets
acquired and liabilities assumed in a business combination. Certain provisions of this
standard will, among other things, impact the determination of acquisition-date fair value
of consideration paid in a business combination (including contingent consideration);
exclude transaction costs from acquisition accounting; and change accounting practices for
acquired contingencies, acquisition-related restructuring costs, in-process research and
development, indemnification assets, and tax benefits. SFAS 141R is effective for business
combinations and adjustments to an acquired entitys deferred tax asset and liability
balances occurring after December 31, 2008. We are currently evaluating the future impacts
and disclosures of SFAS 141R.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51, (SFAS 160). SFAS 160 improves the
comparability and transparency of financial statements when reporting minority interest.
Entities with a noncontrolling interest will be required to clearly identify and present
the ownership interest in the consolidated statement of financial position within equity,
but separate from the parents equity. The amount of consolidated net income attributable
to the parent and to the noncontrolling interest will be identified and presented on the
face of the consolidated statement of income. The statement offers further guidance on
changes in ownership interest, deconsolidation, and required disclosures. The statement is
effective for fiscal years and interim periods within those fiscal years beginning
January 1, 2009. We are currently assessing the impact SFAS 160 may have on our financial
statements.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). SFAS 161 is an amendment of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). To address concerns that the
existing disclosure requirements of SFAS 133 do not provide adequate information, this
Statement requires enhanced disclosures about an entitys derivative and hedging activities
and thereby improves the transparency of financial reporting. This statement shall be
effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. We are currently evaluating the future impacts and disclosures of
SFAS 161.
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This
statement is effective 60 days following the Security and Exchange Commissions approval of
the Public Company Accounting Oversight Board amendments to Auditing Standards Section 411.
We do not expect the adoption of SFAS 162 to have a material impact on our results of
operations or financial condition.
In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether
Instruments Granted in Share Based Payment Transactions Are Participating Securities (FSP
EITF 03-6-1). The FASB decided that unvested share-based payout awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of EPS pursuant to the
two-class method under SFAS 128, Earnings per Share. This guidance is effective for
fiscal years beginning after December 15, 2008
and interim periods within those years and prior periods shall be adjusted retrospectively.
We are currently assessing the impact FSP EITF 03-6-1 will have on our financial
statements.
24
16. |
|
Common Stockholders Equity |
Terra allocates $1.00 per share upon the issuance of Common Shares to the Common Share
capital account. The Common Shares have no par value. In the third quarter we declared and
paid a $0.10 dividend per Common Share. Future dividends are necessarily dependent upon
future earnings, capital requirements, general financial condition, general business
conditions, approval from our Board of Directors and other factors.
In connection with the Mississippi Chemical Corporation (MCC) acquisition, we issued
warrants to purchase 4.0 million of our common shares at $5.48 per share. These warrants
were valued at $21.1 million at the MCC closing. During 2005, stockholders approved the
issuance of the underlying shares and the warrant value was reclassified to common
stockholders equity.
During the nine month period ended September 30, 2008, all of these warrants were exercised
and were redeemed for common shares.
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2008 |
|
|
2007 |
|
January 1 warrants outstanding |
|
|
3,288 |
|
|
|
4,000 |
|
Exercised |
|
|
3,288 |
|
|
|
712 |
|
|
|
|
|
|
|
|
September 30 warrants outstanding |
|
|
|
|
|
|
3,288 |
|
|
|
|
|
|
|
|
On May 6, 2008, the Board of Directors adopted a resolution for the repurchase of
12,841,717 shares representing 14 percent of our outstanding common stock. The stock
buyback program commenced on May 7, 2008 and has been and will be conducted on the open
market, in private transactions or otherwise at such times prior to June 30, 2010, and at
such prices we determine appropriate. Purchases may be commenced or suspended at any time
without notice.
During 2008, our repurchases under stock buyback programs were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Average Price |
|
|
Total Cost |
|
(in thousands, except average |
|
Shares |
|
|
of Shares |
|
|
of Shares |
|
price of shares repurchased) |
|
Repurchased |
|
|
Repurchased |
|
|
Repurchased |
|
May 2008 |
|
|
189 |
|
|
$ |
39.65 |
|
|
$ |
7,500 |
|
June 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
July 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
August 2008 |
|
|
772 |
|
|
|
45.91 |
|
|
|
35,448 |
|
September 2008 |
|
|
1,626 |
|
|
|
39.69 |
|
|
|
64,552 |
|
In September 2008 we commenced individual offers (the inducement offer) to pay a cash
premium to holders of the Series A Preferred Shares who elected to convert 117,900 Series A
Preferred Shares into 11,837,349 common shares (see Note 7.)
25
17. |
|
Guarantor Subsidiaries |
The consolidating statement of financial position of Terra Industries Inc. (the Parent),
Terra Capital, Inc. (TCAPI), the Guarantor Subsidiaries and subsidiaries of the Parent
that are not guarantors of the Unsecured Senior Notes due 2017 for September 30, 2008;
December 31, 2007; and September 30, 2007 are presented below for purposes of complying
with the reporting requirements of the Guarantor Subsidiaries. Statements of operations for
the three- and nine-month periods ended September 30,
2008 and 2007 and statements of cash flows for the nine months ended September 30, 2008 and
2007 are presented below for purposes of complying with the reporting requirements of the
Guarantor Subsidiaries. The guarantees of the Guarantor Subsidiaries are full and
unconditional. The Subsidiary issuer and the Guarantor Subsidiaries guarantees are joint
and several with the Parent.
Guarantor subsidiaries include: subsidiaries that own the Woodward, Oklahoma; Port Neal,
Iowa; Yazoo City, Mississippi; and Beaumont, Texas plants; Terra Environmental
Technologies; and the corporate headquarters facility in Sioux City, Iowa. The Beaumont,
Texas facility is classified as held for sale pursuant to SFAS 144. All guarantor
subsidiaries are wholly owned by the Parent. All other company facilities are owned by
non-guarantor subsidiaries.
26
Condensed Consolidating Balance Sheet as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
191,431 |
|
|
$ |
186,977 |
|
|
$ |
305,087 |
|
|
$ |
(2,829 |
) |
|
$ |
680,666 |
|
Accounts receivable, net |
|
|
|
|
|
|
263 |
|
|
|
144,473 |
|
|
|
90,851 |
|
|
|
|
|
|
|
235,587 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
105,066 |
|
|
|
52,870 |
|
|
|
17,984 |
|
|
|
175,920 |
|
Margin deposits with
derivative counterparties |
|
|
|
|
|
|
132,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,058 |
|
Other current assets |
|
|
21,993 |
|
|
|
9,892 |
|
|
|
15,217 |
|
|
|
15,091 |
|
|
|
|
|
|
|
62,193 |
|
Current assets held for sale
discontinued operations |
|
|
|
|
|
|
|
|
|
|
45,607 |
|
|
|
|
|
|
|
|
|
|
|
45,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
21,993 |
|
|
|
333,644 |
|
|
|
497,340 |
|
|
|
463,899 |
|
|
|
15,155 |
|
|
|
1,332,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
|
|
|
|
290,637 |
|
|
|
116,400 |
|
|
|
|
|
|
|
407,037 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
10,884 |
|
|
|
371,722 |
|
|
|
|
|
|
|
382,606 |
|
Intangible assets, other assets
and deferred plant
turnaround costs |
|
|
6,732 |
|
|
|
7,450 |
|
|
|
24,151 |
|
|
|
29,066 |
|
|
|
(6,131 |
) |
|
|
61,268 |
|
Investments in and advances
to (from) affiliates |
|
|
1,171,683 |
|
|
|
133,503 |
|
|
|
2,810,107 |
|
|
|
757,030 |
|
|
|
(4,872,323 |
) |
|
|
|
|
Noncurrent assets held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,200,408 |
|
|
$ |
474,597 |
|
|
$ |
3,633,119 |
|
|
$ |
1,738,117 |
|
|
$ |
(4,863,299 |
) |
|
$ |
2,182,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,053 |
|
|
$ |
|
|
|
$ |
73,982 |
|
|
$ |
49,103 |
|
|
$ |
|
|
|
$ |
124,138 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
91,821 |
|
|
|
103,218 |
|
|
|
|
|
|
|
195,039 |
|
Derivative hedge liabilities |
|
|
117,435 |
|
|
|
11,593 |
|
|
|
7,971 |
|
|
|
81,653 |
|
|
|
|
|
|
|
218,652 |
|
Accrued and other
current liabilities |
|
|
18,451 |
|
|
|
3,384 |
|
|
|
66,546 |
|
|
|
24,663 |
|
|
|
(2 |
) |
|
|
113,042 |
|
Current liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
2,749 |
|
|
|
|
|
|
|
|
|
|
|
2,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
136,939 |
|
|
|
14,977 |
|
|
|
243,069 |
|
|
|
258,637 |
|
|
|
(2 |
) |
|
|
653,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred taxes |
|
|
37,242 |
|
|
|
|
|
|
|
|
|
|
|
14,153 |
|
|
|
1,740 |
|
|
|
53,135 |
|
Pension and other liabilities |
|
|
74,293 |
|
|
|
(510 |
) |
|
|
11,675 |
|
|
|
2,078 |
|
|
|
1,261 |
|
|
|
88,797 |
|
Minority interest |
|
|
|
|
|
|
20,579 |
|
|
|
84,877 |
|
|
|
|
|
|
|
|
|
|
|
105,456 |
|
Noncurrent liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
minority interest |
|
|
248,474 |
|
|
|
365,046 |
|
|
|
339,621 |
|
|
|
274,868 |
|
|
|
2,999 |
|
|
|
1,231,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares liquidation
value of $2,100 |
|
|
2,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,027 |
|
27
Condensed Consolidating Balance Sheet (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
154,866 |
|
|
|
|
|
|
|
73 |
|
|
|
32,458 |
|
|
|
(32,531 |
) |
|
|
154,866 |
|
Paid-in capital |
|
|
625,058 |
|
|
|
150,218 |
|
|
|
2,128,311 |
|
|
|
1,050,476 |
|
|
|
(3,329,005 |
) |
|
|
625,058 |
|
Accumulated other
comprehensive income
(loss) |
|
|
(183,607 |
) |
|
|
|
|
|
|
|
|
|
|
96,016 |
|
|
|
(96,016 |
) |
|
|
(183,607 |
) |
Retained earnings
(accumulated deficit) |
|
|
353,590 |
|
|
|
(40,667 |
) |
|
|
1,165,114 |
|
|
|
284,299 |
|
|
|
(1,408,746 |
) |
|
|
353,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
949,907 |
|
|
|
109,551 |
|
|
|
3,293,498 |
|
|
|
1,463,249 |
|
|
|
(4,866,298 |
) |
|
|
949,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
1,200,408 |
|
|
$ |
474,597 |
|
|
$ |
3,633,119 |
|
|
$ |
1,738,117 |
|
|
$ |
(4,863,299 |
) |
|
$ |
2,182,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Consolidating Statement of Operations for the three months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
474,025 |
|
|
$ |
314,247 |
|
|
$ |
|
|
|
$ |
788,272 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
975 |
|
|
|
967 |
|
|
|
|
|
|
|
1,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
475,000 |
|
|
|
315,214 |
|
|
|
|
|
|
|
790,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
84 |
|
|
|
384,115 |
|
|
|
194,111 |
|
|
|
|
|
|
|
578,310 |
|
Selling, general and
administrative expenses |
|
|
784 |
|
|
|
(3,459 |
) |
|
|
19,192 |
|
|
|
1,784 |
|
|
|
|
|
|
|
18,301 |
|
Equity earnings of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
(15,857 |
) |
|
|
|
|
|
|
|
|
|
|
(15,857 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
784 |
|
|
|
(3,375 |
) |
|
|
387,450 |
|
|
|
195,895 |
|
|
|
|
|
|
|
580,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(784 |
) |
|
|
3,375 |
|
|
|
87,550 |
|
|
|
119,319 |
|
|
|
|
|
|
|
209,460 |
|
Interest income |
|
|
|
|
|
|
2,434 |
|
|
|
1,212 |
|
|
|
1,763 |
|
|
|
|
|
|
|
5,409 |
|
Interest expense |
|
|
(465 |
) |
|
|
(6,207 |
) |
|
|
(2 |
) |
|
|
(99 |
) |
|
|
|
|
|
|
(6,773 |
) |
Foreign currency gain (loss) |
|
|
13 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and minority interest |
|
|
(1,236 |
) |
|
|
(398 |
) |
|
|
88,747 |
|
|
|
120,983 |
|
|
|
|
|
|
|
208,096 |
|
Income tax benefit (provision) |
|
|
411 |
|
|
|
(26,200 |
) |
|
|
(28,499 |
) |
|
|
(8,881 |
) |
|
|
|
|
|
|
(63,169 |
) |
Minority interest |
|
|
|
|
|
|
(3,039 |
) |
|
|
(12,709 |
) |
|
|
|
|
|
|
|
|
|
|
(15,748 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
172,236 |
|
|
|
201,873 |
|
|
|
|
|
|
|
42,091 |
|
|
|
(374,109 |
) |
|
|
42,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
171,411 |
|
|
|
172,236 |
|
|
|
47,539 |
|
|
|
154,193 |
|
|
|
(374,109 |
) |
|
|
171,270 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
171,411 |
|
|
$ |
172,236 |
|
|
$ |
47,680 |
|
|
$ |
154,193 |
|
|
$ |
(374,109 |
) |
|
$ |
171,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Consolidating Statement of Operations for the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,308,594 |
|
|
$ |
889,804 |
|
|
$ |
|
|
|
$ |
2,198,398 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
7,040 |
|
|
|
2,577 |
|
|
|
|
|
|
|
9,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
1,315,634 |
|
|
|
892,381 |
|
|
|
|
|
|
|
2,208,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
250 |
|
|
|
1,034,272 |
|
|
|
497,847 |
|
|
|
|
|
|
|
1,532,369 |
|
Selling, general and
administrative expenses |
|
|
2,194 |
|
|
|
(9,549 |
) |
|
|
39,301 |
|
|
|
26,292 |
|
|
|
|
|
|
|
58,238 |
|
Equity earnings of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
(45,665 |
) |
|
|
|
|
|
|
|
|
|
|
(45,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
2,194 |
|
|
|
(9,299 |
) |
|
|
1,027,908 |
|
|
|
524,139 |
|
|
|
|
|
|
|
1,544,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(2,194 |
) |
|
|
9,299 |
|
|
|
287,726 |
|
|
|
368,242 |
|
|
|
|
|
|
|
663,073 |
|
Interest income |
|
|
|
|
|
|
8,357 |
|
|
|
3,195 |
|
|
|
7,778 |
|
|
|
|
|
|
|
19,330 |
|
Interest expense |
|
|
(1,395 |
) |
|
|
(18,633 |
) |
|
|
(5 |
) |
|
|
(554 |
) |
|
|
|
|
|
|
(20,587 |
) |
Foreign currency gain (loss) |
|
|
13 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and minority interest |
|
|
(3,576 |
) |
|
|
(977 |
) |
|
|
290,903 |
|
|
|
375,466 |
|
|
|
|
|
|
|
661,816 |
|
Income tax benefit (provision) |
|
|
1,385 |
|
|
|
(92,316 |
) |
|
|
(112,634 |
) |
|
|
(26,177 |
) |
|
|
|
|
|
|
(229,742 |
) |
Minority interest |
|
|
|
|
|
|
(10,107 |
) |
|
|
(42,262 |
) |
|
|
|
|
|
|
|
|
|
|
(52,369 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
478,494 |
|
|
|
581,894 |
|
|
|
|
|
|
|
88,986 |
|
|
|
(1,060,388 |
) |
|
|
88,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
476,303 |
|
|
|
478,494 |
|
|
|
136,007 |
|
|
|
438,275 |
|
|
|
(1,060,388 |
) |
|
|
468,691 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
476,303 |
|
|
$ |
478,494 |
|
|
$ |
143,619 |
|
|
$ |
438,275 |
|
|
$ |
(1,060,388 |
) |
|
$ |
476,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Consolidating Statement of Cash Flows for the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
476,303 |
|
|
$ |
478,494 |
|
|
$ |
143,619 |
|
|
$ |
438,275 |
|
|
$ |
(1,060,388 |
) |
|
$ |
476,303 |
|
Income from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
476,303 |
|
|
|
478,494 |
|
|
|
136,007 |
|
|
|
438,275 |
|
|
|
(1,060,388 |
) |
|
|
468,691 |
|
Adjustments to reconcile
income from continuing
operations to net cash
flows from operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
30,459 |
|
|
|
27,947 |
|
|
|
|
|
|
|
58,406 |
|
Loss on sale of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
1,063 |
|
|
|
1,172 |
|
|
|
|
|
|
|
2,235 |
|
Deferred income taxes |
|
|
(51,772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,772 |
) |
Minority interest in earnings |
|
|
|
|
|
|
(825 |
) |
|
|
53,194 |
|
|
|
|
|
|
|
|
|
|
|
52,369 |
|
Distributions in excess of
(less than) equity earnings |
|
|
(551,308 |
) |
|
|
232,259 |
|
|
|
(45,665 |
) |
|
|
|
|
|
|
367,238 |
|
|
|
2,524 |
|
Equity earnings
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,986 |
) |
|
|
|
|
|
|
(88,986 |
) |
Non-cash gain on derivatives |
|
|
(1,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,610 |
) |
Share-based compensation |
|
|
10,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,333 |
|
Amortization of intangible
and other assets |
|
|
|
|
|
|
|
|
|
|
3,694 |
|
|
|
2,499 |
|
|
|
|
|
|
|
6,193 |
|
Change in operating assets
and liabilities continuing
operations |
|
|
(62,785 |
) |
|
|
(135,392 |
) |
|
|
(62,752 |
) |
|
|
(182,927 |
) |
|
|
181,578 |
|
|
|
(262,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating
activities continuing
operations |
|
|
(180,839 |
) |
|
|
574,536 |
|
|
|
116,000 |
|
|
|
197,980 |
|
|
|
(511,572 |
) |
|
|
196,105 |
|
Net cash flows from operating
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
9,439 |
|
|
|
|
|
|
|
|
|
|
|
9,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Operating Activities |
|
|
(180,839 |
) |
|
|
574,536 |
|
|
|
125,439 |
|
|
|
197,980 |
|
|
|
(511,572 |
) |
|
|
205,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and plant
turnaround expenditures |
|
|
|
|
|
|
|
|
|
|
(61,357 |
) |
|
|
(8,766 |
) |
|
|
|
|
|
|
(70,123 |
) |
Proceeds from the sale of
property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
410 |
|
|
|
|
|
|
|
1,660 |
|
Distributions received from
unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
7,196 |
|
|
|
|
|
|
|
|
|
|
|
7,196 |
|
Contribution settlement
received from
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,427 |
|
|
|
|
|
|
|
27,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing
activities continuing
operations |
|
|
|
|
|
|
|
|
|
|
(52,911 |
) |
|
|
19,071 |
|
|
|
|
|
|
|
(33,840 |
) |
Net cash flows from investing
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
|
|
(52,911 |
) |
|
|
19,071 |
|
|
|
|
|
|
|
(33,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Consolidating Statement of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends paid |
|
|
(3,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,825 |
) |
Preferred share inducement |
|
|
(5,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,248 |
) |
Common stock dividends paid |
|
|
(18,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,299 |
) |
Common stock issuances and
vestings |
|
|
(9,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,839 |
) |
Change in investments and
advances from (to) affiliates |
|
|
313,428 |
|
|
|
(438,962 |
) |
|
|
(96,054 |
) |
|
|
(818,671 |
) |
|
|
1,040,259 |
|
|
|
|
|
Excess tax benefits from equity
compensation plans |
|
|
12,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,122 |
|
Payments under share
repurchase program |
|
|
(107,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,500 |
) |
Distributions to minority
interests |
|
|
|
|
|
|
|
|
|
|
(56,642 |
) |
|
|
|
|
|
|
|
|
|
|
(56,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing
activities continuing
operations |
|
|
180,839 |
|
|
|
(438,962 |
) |
|
|
(152,696 |
) |
|
|
(818,671 |
) |
|
|
1,040,259 |
|
|
|
(189,231 |
) |
Net cash flows from financing
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Financing Activities |
|
|
180,839 |
|
|
|
(438,962 |
) |
|
|
(152,696 |
) |
|
|
(818,671 |
) |
|
|
1,040,259 |
|
|
|
(189,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate
Changes on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in Cash
and Cash Equivalents |
|
|
|
|
|
|
135,574 |
|
|
|
(80,168 |
) |
|
|
(601,665 |
) |
|
|
528,687 |
|
|
|
(17,572 |
) |
Cash and Cash Equivalents
at Beginning of Year |
|
|
|
|
|
|
55,857 |
|
|
|
267,145 |
|
|
|
906,752 |
|
|
|
(531,516 |
) |
|
|
698,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
at End of Year |
|
$ |
|
|
|
$ |
191,431 |
|
|
$ |
186,977 |
|
|
$ |
305,087 |
|
|
$ |
(2,829 |
) |
|
$ |
680,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Condensed Consolidating Balance Sheet as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
restricted cash |
|
$ |
|
|
|
$ |
55,857 |
|
|
$ |
267,145 |
|
|
$ |
906,752 |
|
|
$ |
(531,516 |
) |
|
$ |
698,238 |
|
Accounts receivable, net |
|
|
1 |
|
|
|
2 |
|
|
|
98,469 |
|
|
|
72,711 |
|
|
|
|
|
|
|
171,183 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
95,781 |
|
|
|
32,104 |
|
|
|
1,436 |
|
|
|
129,321 |
|
Margin deposits with
derivative counterparties |
|
|
|
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
638 |
|
Other current assets |
|
|
10,614 |
|
|
|
|
|
|
|
11,127 |
|
|
|
6,454 |
|
|
|
|
|
|
|
28,195 |
|
Current assets held for sale
discontinued operations |
|
|
|
|
|
|
|
|
|
|
2,335 |
|
|
|
|
|
|
|
|
|
|
|
2,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
10,615 |
|
|
|
56,497 |
|
|
|
474,857 |
|
|
|
1,018,021 |
|
|
|
(530,080 |
) |
|
|
1,029,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
|
|
|
|
264,198 |
|
|
|
125,530 |
|
|
|
|
|
|
|
389,728 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
10,488 |
|
|
|
341,498 |
|
|
|
|
|
|
|
351,986 |
|
Deferred plant turnaround
costs, intangible and
other assets |
|
|
6,732 |
|
|
|
8,333 |
|
|
|
18,984 |
|
|
|
45,174 |
|
|
|
(5,549 |
) |
|
|
73,674 |
|
Investments in and advances
to (from) affiliates |
|
|
620,375 |
|
|
|
365,762 |
|
|
|
1,848,352 |
|
|
|
57,752 |
|
|
|
(2,892,241 |
) |
|
|
|
|
Noncurrent assets held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
43,029 |
|
|
|
|
|
|
|
|
|
|
|
43,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
637,722 |
|
|
$ |
430,592 |
|
|
$ |
2,659,908 |
|
|
$ |
1,587,975 |
|
|
$ |
(3,427,870 |
) |
|
$ |
1,888,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
128 |
|
|
$ |
|
|
|
$ |
66,945 |
|
|
$ |
43,614 |
|
|
$ |
|
|
|
$ |
110,687 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
125,036 |
|
|
|
174,315 |
|
|
|
|
|
|
|
299,351 |
|
Derivative hedge liabilities |
|
|
5,456 |
|
|
|
|
|
|
|
1,318 |
|
|
|
7,959 |
|
|
|
|
|
|
|
14,733 |
|
Accrued and other
liabilities |
|
|
20,259 |
|
|
|
9,169 |
|
|
|
44,190 |
|
|
|
14,304 |
|
|
|
|
|
|
|
87,922 |
|
Current liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
4,993 |
|
|
|
|
|
|
|
|
|
|
|
4,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
25,843 |
|
|
|
9,169 |
|
|
|
242,482 |
|
|
|
240,192 |
|
|
|
|
|
|
|
517,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred income taxes |
|
|
86,157 |
|
|
|
|
|
|
|
|
|
|
|
10,113 |
|
|
|
3,584 |
|
|
|
99,854 |
|
Pension and other liabilities |
|
|
79,650 |
|
|
|
|
|
|
|
11,628 |
|
|
|
2,866 |
|
|
|
|
|
|
|
94,144 |
|
Minority interest |
|
|
|
|
|
|
21,404 |
|
|
|
88,325 |
|
|
|
|
|
|
|
|
|
|
|
109,729 |
|
Noncurrent liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
739 |
|
|
|
|
|
|
|
|
|
|
|
739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
minority interest |
|
|
191,650 |
|
|
|
360,573 |
|
|
|
343,174 |
|
|
|
253,171 |
|
|
|
3,584 |
|
|
|
1,152,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock liquidation
value of $120,000 |
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,800 |
|
33
Condensed Consolidating Balance Sheet (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Common Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
142,170 |
|
|
|
|
|
|
|
73 |
|
|
|
32,458 |
|
|
|
(32,531 |
) |
|
|
142,170 |
|
Paid in capital |
|
|
618,873 |
|
|
|
150,218 |
|
|
|
1,910,748 |
|
|
|
1,133,745 |
|
|
|
(3,194,710 |
) |
|
|
618,874 |
|
Accumulated other
comprehensive income
(loss) |
|
|
(22,002 |
) |
|
|
|
|
|
|
|
|
|
|
281,850 |
|
|
|
(305,176 |
) |
|
|
(45,328 |
) |
Retained earnings
(accumulated deficit) |
|
|
(408,769 |
) |
|
|
(80,199 |
) |
|
|
405,913 |
|
|
|
(113,249 |
) |
|
|
100,963 |
|
|
|
(95,341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
330,272 |
|
|
|
70,019 |
|
|
|
2,316,734 |
|
|
|
1,334,804 |
|
|
|
(3,431,454 |
) |
|
|
620,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
637,722 |
|
|
$ |
430,592 |
|
|
$ |
2,659,908 |
|
|
$ |
1,587,975 |
|
|
$ |
(3,427,870 |
) |
|
$ |
1,888,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Consolidating Balance Sheet as of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
43,545 |
|
|
$ |
218,604 |
|
|
$ |
566,133 |
|
|
$ |
(467,804 |
) |
|
$ |
360,478 |
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
97,744 |
|
|
|
61,916 |
|
|
|
|
|
|
|
159,660 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
76,549 |
|
|
|
51,785 |
|
|
|
(4,384 |
) |
|
|
123,950 |
|
Margin deposits with
derivative counterparties |
|
|
|
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
538 |
|
Other current assets |
|
|
2,075 |
|
|
|
(1 |
) |
|
|
7,490 |
|
|
|
4,811 |
|
|
|
(1,872 |
) |
|
|
12,503 |
|
Current assets held for sale
discontinued operations |
|
|
|
|
|
|
|
|
|
|
2,475 |
|
|
|
|
|
|
|
|
|
|
|
2,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,075 |
|
|
|
44,082 |
|
|
|
402,862 |
|
|
|
684,645 |
|
|
|
(474,060 |
) |
|
|
659,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
|
|
|
|
269,323 |
|
|
|
123,569 |
|
|
|
(1 |
) |
|
|
392,891 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
10,917 |
|
|
|
358,688 |
|
|
|
|
|
|
|
369,605 |
|
Intangible assets, other assets
and deferred plant
turnaround costs |
|
|
(1,839 |
) |
|
|
8,326 |
|
|
|
23,037 |
|
|
|
30,253 |
|
|
|
(4,413 |
) |
|
|
55,364 |
|
Investments in and advances
to (from) affiliates |
|
|
531,956 |
|
|
|
344,748 |
|
|
|
1,459,277 |
|
|
|
|
|
|
|
(2,335,981 |
) |
|
|
|
|
Noncurrent assets held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
43,029 |
|
|
|
|
|
|
|
|
|
|
|
43,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
532,192 |
|
|
$ |
397,156 |
|
|
$ |
2,208,445 |
|
|
$ |
1,197,155 |
|
|
$ |
(2,814,455 |
) |
|
$ |
1,520,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,298 |
|
|
$ |
(212 |
) |
|
$ |
44,151 |
|
|
$ |
34,056 |
|
|
$ |
|
|
|
$ |
80,293 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
44,993 |
|
|
|
40,320 |
|
|
|
|
|
|
|
85,313 |
|
Derivative hedge liabilities |
|
|
11,187 |
|
|
|
|
|
|
|
939 |
|
|
|
14,041 |
|
|
|
|
|
|
|
26,167 |
|
Accrued and other
current liabilities |
|
|
25,127 |
|
|
|
3,549 |
|
|
|
32,144 |
|
|
|
6,316 |
|
|
|
(1,782 |
) |
|
|
65,354 |
|
Current liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
4,833 |
|
|
|
|
|
|
|
|
|
|
|
4,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
38,612 |
|
|
|
3,337 |
|
|
|
127,060 |
|
|
|
94,733 |
|
|
|
(1,782 |
) |
|
|
261,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred taxes |
|
|
(34,856 |
) |
|
|
|
|
|
|
|
|
|
|
29,920 |
|
|
|
54,627 |
|
|
|
49,691 |
|
Pension and other liabilities |
|
|
135,103 |
|
|
|
(511 |
) |
|
|
12,318 |
|
|
|
(57,253 |
) |
|
|
36,726 |
|
|
|
126,383 |
|
Minority interest |
|
|
|
|
|
|
20,077 |
|
|
|
82,777 |
|
|
|
|
|
|
|
|
|
|
|
102,854 |
|
Noncurrent liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
1,849 |
|
|
|
|
|
|
|
|
|
|
|
1,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
minority interest |
|
|
138,859 |
|
|
|
352,903 |
|
|
|
224,004 |
|
|
|
67,400 |
|
|
|
89,571 |
|
|
|
872,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock liquidation
value of $120,000 |
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
142,070 |
|
|
|
|
|
|
|
73 |
|
|
|
32,458 |
|
|
|
(32,532 |
) |
|
|
142,069 |
|
Paid-in capital |
|
|
617,085 |
|
|
|
150,218 |
|
|
|
1,949,997 |
|
|
|
1,173,391 |
|
|
|
(3,273,606 |
) |
|
|
617,085 |
|
Accumulated other
comprehensive income
(loss) |
|
|
(37,305 |
) |
|
|
|
|
|
|
|
|
|
|
102,236 |
|
|
|
(128,411 |
) |
|
|
(63,480 |
) |
Retained earnings
(accumulated deficit) |
|
|
(444,317 |
) |
|
|
(105,965 |
) |
|
|
34,371 |
|
|
|
(178,330 |
) |
|
|
530,523 |
|
|
|
(163,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
277,533 |
|
|
|
44,253 |
|
|
|
1,984,441 |
|
|
|
1,129,755 |
|
|
|
(2,904,026 |
) |
|
|
531,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
532,192 |
|
|
$ |
397,156 |
|
|
$ |
2,208,445 |
|
|
$ |
1,197,155 |
|
|
$ |
(2,814,455 |
) |
|
$ |
1,520,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Consolidating Statement of Operations for the three months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
285,538 |
|
|
$ |
292,378 |
|
|
$ |
|
|
|
$ |
577,916 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
2,019 |
|
|
|
541 |
|
|
|
|
|
|
|
2,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
287,557 |
|
|
|
292,919 |
|
|
|
|
|
|
|
580,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
300 |
|
|
|
83 |
|
|
|
213,879 |
|
|
|
227,601 |
|
|
|
|
|
|
|
441,863 |
|
Selling, general and
administrative expenses |
|
|
564 |
|
|
|
(2,877 |
) |
|
|
31,692 |
|
|
|
(7,443 |
) |
|
|
|
|
|
|
21,936 |
|
Equity earnings of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
(5,566 |
) |
|
|
|
|
|
|
|
|
|
|
(5,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
864 |
|
|
|
(2,794 |
) |
|
|
240,005 |
|
|
|
220,158 |
|
|
|
|
|
|
|
458,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(864 |
) |
|
|
2,794 |
|
|
|
47,552 |
|
|
|
72,761 |
|
|
|
|
|
|
|
122,243 |
|
Interest income |
|
|
|
|
|
|
1,251 |
|
|
|
1,519 |
|
|
|
1,939 |
|
|
|
|
|
|
|
4,709 |
|
Interest expense |
|
|
(465 |
) |
|
|
(6,323 |
) |
|
|
(2 |
) |
|
|
(115 |
) |
|
|
|
|
|
|
(6,905 |
) |
Loss on early retirement
of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and minority interest |
|
|
(1,329 |
) |
|
|
(2,278 |
) |
|
|
49,069 |
|
|
|
74,585 |
|
|
|
|
|
|
|
120,047 |
|
Income tax (provision) benefit |
|
|
596 |
|
|
|
(13,971 |
) |
|
|
(22,008 |
) |
|
|
(5,271 |
) |
|
|
|
|
|
|
(40,654 |
) |
Minority interest |
|
|
|
|
|
|
(2,150 |
) |
|
|
(8,994 |
) |
|
|
|
|
|
|
|
|
|
|
(11,144 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
55,113 |
|
|
|
73,512 |
|
|
|
|
|
|
|
2,202 |
|
|
|
(128,625 |
) |
|
|
2,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
54,380 |
|
|
|
55,113 |
|
|
|
18,067 |
|
|
|
71,516 |
|
|
|
(128,625 |
) |
|
|
70,451 |
|
Income (loss) from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
(16,071 |
) |
|
|
|
|
|
|
|
|
|
|
(16,071 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
54,380 |
|
|
$ |
55,113 |
|
|
$ |
1,996 |
|
|
$ |
71,516 |
|
|
$ |
(128,625 |
) |
|
$ |
54,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Consolidating Statement of Operations for the nine months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
846,618 |
|
|
$ |
921,759 |
|
|
$ |
|
|
|
$ |
1,768,377 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
3,860 |
|
|
|
1,698 |
|
|
|
|
|
|
|
5,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
850,478 |
|
|
|
923,457 |
|
|
|
|
|
|
|
1,773,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
600 |
|
|
|
262 |
|
|
|
699,088 |
|
|
|
696,530 |
|
|
|
|
|
|
|
1,396,480 |
|
Selling, general and
administrative expenses |
|
|
1,516 |
|
|
|
(8,780 |
) |
|
|
37,486 |
|
|
|
36,965 |
|
|
|
|
|
|
|
67,187 |
|
Equity earnings of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
(10,379 |
) |
|
|
|
|
|
|
|
|
|
|
(10,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
2,116 |
|
|
|
(8,518 |
) |
|
|
726,195 |
|
|
|
733,495 |
|
|
|
|
|
|
|
1,453,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(2,116 |
) |
|
|
8,518 |
|
|
|
124,283 |
|
|
|
189,962 |
|
|
|
|
|
|
|
320,647 |
|
Interest income |
|
|
|
|
|
|
2,521 |
|
|
|
5,077 |
|
|
|
3,480 |
|
|
|
|
|
|
|
11,078 |
|
Interest expense |
|
|
(1,395 |
) |
|
|
(20,944 |
) |
|
|
(5 |
) |
|
|
(341 |
) |
|
|
|
|
|
|
(22,685 |
) |
Loss on early retirement
of debt |
|
|
|
|
|
|
(38,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,836 |
) |
Foreign currency gain (loss) |
|
|
|
|
|
|
(1,886 |
) |
|
|
2 |
|
|
|
1,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and minority interest |
|
|
(3,511 |
) |
|
|
(50,627 |
) |
|
|
129,357 |
|
|
|
194,985 |
|
|
|
|
|
|
|
270,204 |
|
Income tax (provision) benefit |
|
|
1,499 |
|
|
|
(22,753 |
) |
|
|
(55,242 |
) |
|
|
(10,894 |
) |
|
|
|
|
|
|
(87,390 |
) |
Minority interest |
|
|
|
|
|
|
(6,507 |
) |
|
|
(27,213 |
) |
|
|
|
|
|
|
|
|
|
|
(33,720 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
134,256 |
|
|
|
214,143 |
|
|
|
|
|
|
|
2,202 |
|
|
|
(348,399 |
) |
|
|
2,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
132,244 |
|
|
|
134,256 |
|
|
|
46,902 |
|
|
|
186,293 |
|
|
|
(348,399 |
) |
|
|
151,296 |
|
Income (loss) from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
(19,052 |
) |
|
|
|
|
|
|
|
|
|
|
(19,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
132,244 |
|
|
$ |
134,256 |
|
|
$ |
27,850 |
|
|
$ |
186,293 |
|
|
$ |
(348,399 |
) |
|
$ |
132,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Consolidating Statement of Cash Flows for the nine months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
132,244 |
|
|
$ |
134,256 |
|
|
$ |
27,850 |
|
|
$ |
186,293 |
|
|
$ |
(348,399 |
) |
|
$ |
132,244 |
|
Loss from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
(19,052 |
) |
|
|
|
|
|
|
|
|
|
|
(19,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
132,244 |
|
|
|
134,256 |
|
|
|
46,902 |
|
|
|
186,293 |
|
|
|
(348,399 |
) |
|
|
151,296 |
|
Adjustments to reconcile net
income from continuing
operations to net cash
flows from operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
35,724 |
|
|
|
45,333 |
|
|
|
(6,032 |
) |
|
|
75,025 |
|
Deferred income taxes |
|
|
61,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,629 |
|
Minority interest in earnings |
|
|
|
|
|
|
1,576 |
|
|
|
32,145 |
|
|
|
|
|
|
|
(1 |
) |
|
|
33,720 |
|
Distributions in excess of (less
than) equity earnings |
|
|
226,421 |
|
|
|
2,730 |
|
|
|
5,121 |
|
|
|
427,082 |
|
|
|
(656,233 |
) |
|
|
5,121 |
|
Equity earnings
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,202 |
) |
|
|
|
|
|
|
(2,202 |
) |
Non-cash loss on derivatives |
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176 |
|
Share-based compensation |
|
|
16,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,838 |
|
Amortization of intangible
and other assets |
|
|
|
|
|
|
|
|
|
|
2,765 |
|
|
|
3,890 |
|
|
|
|
|
|
|
6,655 |
|
Non-cash loss on early
retirement of debt |
|
|
|
|
|
|
4,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,662 |
|
Change in operating assets
and liabilities continuing
operations |
|
|
(92,663 |
) |
|
|
(1,322 |
) |
|
|
11,028 |
|
|
|
90,104 |
|
|
|
7,098 |
|
|
|
14,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating
activities continuing
operations |
|
|
344,645 |
|
|
|
141,902 |
|
|
|
133,685 |
|
|
|
750,500 |
|
|
|
(1,003,567 |
) |
|
|
367,165 |
|
Net cash flows from operating
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
14,572 |
|
|
|
|
|
|
|
|
|
|
|
14,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Operating Activities |
|
|
344,645 |
|
|
|
141,902 |
|
|
|
148,257 |
|
|
|
750,500 |
|
|
|
(1,003,567 |
) |
|
|
381,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and plant
turnaround expenditures |
|
|
|
|
|
|
|
|
|
|
(23,324 |
) |
|
|
(43,362 |
) |
|
|
7,577 |
|
|
|
(59,109 |
) |
Cash retained by
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,249 |
) |
|
|
|
|
|
|
(17,249 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Investing Activities
Continuing Operations |
|
|
|
|
|
|
|
|
|
|
(23,324 |
) |
|
|
(60,611 |
) |
|
|
7,577 |
|
|
|
(76,358 |
) |
Net Cash Flows from
Investing Activities
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
|
|
(23,324 |
) |
|
|
(60,611 |
) |
|
|
7,577 |
|
|
|
(76,358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Consolidating Statement of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Payments under borrowing
arrangements |
|
|
|
|
|
|
(331,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(331,300 |
) |
Payments for debt issuance
costs |
|
|
|
|
|
|
(6,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,403 |
) |
Preferred share dividends paid |
|
|
(3,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,825 |
) |
Common stock issuances and
vestings |
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89 |
|
Change in investments and
advances from (to) affiliates |
|
|
(253,484 |
) |
|
|
(191,390 |
) |
|
|
119,225 |
|
|
|
(202,539 |
) |
|
|
528,188 |
|
|
|
|
|
Payments under share repurchase
program |
|
|
(87,426 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,426 |
) |
Distributions to minority
interests |
|
|
|
|
|
|
|
|
|
|
(25,554 |
) |
|
|
|
|
|
|
|
|
|
|
(25,554 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Financing Activities
Continuing Operations |
|
|
(344,646 |
) |
|
|
(199,093 |
) |
|
|
93,671 |
|
|
|
(202,539 |
) |
|
|
528,188 |
|
|
|
(124,419 |
) |
Net Cash Flows from
Financing Activities
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Financing Activities |
|
|
(344,646 |
) |
|
|
(199,093 |
) |
|
|
93,671 |
|
|
|
(202,539 |
) |
|
|
528,188 |
|
|
|
(124,419 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate
Changes on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
501 |
|
|
|
|
|
|
|
501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in Cash
and Cash Equivalents |
|
|
(1 |
) |
|
|
(57,191 |
) |
|
|
218,604 |
|
|
|
487,851 |
|
|
|
(467,802 |
) |
|
|
181,461 |
|
Cash and Cash Equivalents
at Beginning of Year |
|
|
1 |
|
|
|
100,736 |
|
|
|
|
|
|
|
78,282 |
|
|
|
(2 |
) |
|
|
179,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
at End of Year |
|
$ |
|
|
|
$ |
43,545 |
|
|
$ |
218,604 |
|
|
$ |
566,133 |
|
|
$ |
(467,804 |
) |
|
$ |
360,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
As you read this managements discussion and analysis of financial condition and results of
operations, you should refer to our Consolidated Financial Statements and related Notes
included in Item 1, Financial Statements.
Introduction
We are a leading North American producer and marketer of wholesale nitrogen products, serving
agricultural and industrial markets. Nitrogen products are commodity chemicals that are sold
at prices reflecting global supply and demand conditions. The nitrogen products industry has
periods of oversupply during industry downturns that lead to capacity shutdowns at the least
cost-effective plants. These shutdowns are followed by supply shortages, which result in
higher selling prices and higher industry-wide production rates during industry upturns. The
higher selling prices encourage capacity additions until we again start to see an oversupply,
and the cycle repeats itself.
Natural gas is the most significant raw material in the production of nitrogen products. In
the 2008 third quarter, natural gas prices have been extremely volatile. These changes have a
significant impact on our cost of production.
The following is an average NYMEX forward natural gas price for the succeeding twelve month
period noted for the respective dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
(in $per MMBtu) |
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
|
$ |
7.62 |
|
|
$ |
7.81 |
|
|
$ |
10.50 |
|
|
$ |
13.22 |
|
|
$ |
7.90 |
|
During the first and second quarters of 2008, natural gas prices increased significantly.
Natural gas prices declined dramatically during the third quarter of 2008. Generally, as
customers place advance orders we secure the prices for the natural gas required to produce
the inventory to satisfy these orders.
The key drivers of our profitability are nitrogen products selling prices, as determined
primarily by the global nitrogen demand/supply balance; and natural gas costs, in North
American markets. Recent demand has been affected by the growing global population and its
preference for a higher-protein diet and by the rise of corn-consuming biofuels in North
America.
Imports account for over half of the total North American nitrogen supply, with levels varying
among the various products. Most producers exporting nitrogen products into North America can
afford to do so because they are manufacturing product with lower cost gas than that which is
available to North American producers.
During the second quarter of 2008, China imposed significant export tariffs on urea.
Subsequent to this announcement, North American spot prices for nitrogen products
significantly increased. During the third quarter of 2008, China imposed increased export
tariffs on urea through December 31, 2008. During 2007, China was a major exporter of urea to
North America. The introduction of the export tariffs in 2008 reduced the volume of exports to
North America. If China reduces or eliminates the export tariffs on urea after December 31,
2008, significant volumes of exports from China may resume.
40
Our sales volumes depend primarily on our plants operating rates. We also purchase product
from other manufacturers and importers for resale; however, historic gross margins on these
volumes have not been significant. Profitability and cash flows from our nitrogen products
are affected by our ability to manage our costs and expenses (other than natural gas), most of
which do not materially change for different levels of production or sales. Other factors
affecting our nitrogen products results include the level of planted corn and wheat acres,
transportation costs, weather conditions (particularly during planting season), grain prices
and other variables described in Item 1 Business and Item 2 Properties sections of our
2007 Form 10-K filing with the Securities Exchange Commission.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2008 COMPARED WITH
QUARTER ENDED SEPTEMBER 30, 2007
Consolidated Results
We reported net income of $171.4 million for the 2008 third quarter compared with 2007 third
quarter net income of $54.4 million. The net income increase is primarily due to higher sales
prices as a result of increased demand for nitrogen products, specifically in the agricultural
markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Sales |
|
|
Average |
|
|
Sales |
|
|
Average |
|
(quantities in thousands of tons) |
|
Volumes |
|
|
Unit Price (1) |
|
|
Volumes |
|
|
Unit Price (1) |
|
Ammonia (2) |
|
|
392 |
|
|
$ |
598 |
|
|
|
410 |
|
|
$ |
308 |
|
UAN (32% basis) (3) |
|
|
1,055 |
|
|
$ |
349 |
|
|
|
974 |
|
|
$ |
238 |
|
Urea |
|
|
21 |
|
|
$ |
432 |
|
|
|
24 |
|
|
$ |
298 |
|
Ammonium nitrate (2) |
|
|
172 |
|
|
$ |
388 |
|
|
|
132 |
|
|
$ |
248 |
|
|
|
|
(1) |
|
After deducting outbound freight costs. |
|
(2) |
|
2007 ammonia and ammonium nitrate sales volumes and prices have been adjusted to exclude
Terras UK operations for comparability to 2008 volumes and pricing. |
|
(3) |
|
The nitrogen content of UAN is 32% by weight. |
Product revenues for the quarter ended September 30, 2008 increased $210.4 million, or 36%,
compared with the same 2007 quarter, primarily due to higher sales prices for all nitrogen
products and higher sales volumes of upgraded products. The price increase is due to improved
demand for nitrogen products. The 2007 third quarter revenues included $108.1 million from the
UK. The UK operations were contributed into the GrowHow UK Limited joint venture during the
2007 third quarter and its results are classified as non-operating equity earnings.
Operating income for the 2008 third quarter was $209.5 million, which was $87.3 million more
than the $122.2 million income in the 2007 third quarter. The third quarter 2007 operating
income includes $28.0 million from the former UK operations, excluding this amount, North
America operating income increased $115.3 million. Higher third quarter sales prices
contributed $296.7 million to the 2008 third quarter operating income. This increase was
partially offset by increased costs of $176.4 million, primarily as a result of higher gas
costs and increased costs relating to purchased product for resale. Natural gas costs,
including the effects of forward price contracts, during the 2008 and 2007 third quarters,
were $9.94 per MMBtu and $7.12 per MMBtu, respectively. The Donaldsonville, Louisiana ammonia
plant incurred additional start up costs of $7.5 million due to the impact of hurricanes and
mechanical issues. Increased equity earnings contributed $10.3 million to operating income.
41
Discontinued Operations
We have reported our Beaumont, Texas operations as discontinued operations for the periods
ending September 30, 2008 and 2007. The Beaumont operations were included in our methanol
segment in prior periods. In connection with reporting discontinued operations, we have
determined that our methanol segment no longer meets the requirements of a reporting segment.
During the third quarter of 2007 we recorded an asset impairment charge of $39.0 million
related to the Beaumont asset as well as the Methanex profit sharing revenue of $12.0 million.
Minority Interest
Minority interest represents third-party interests in the earnings of the publicly held common
units of Terra Nitrogen Company, L.P. (TNCLP). The 2008 and 2007 amounts are directly related
to TNCLP earnings and losses. During the first quarter of 2008, the cumulative shortfall of
the Minimum Quarterly Distribution was satisfied which entitled us to increased income
allocations as provided for in the TNCLP Partnership Agreement. Our increased income
allocation attributed to our General Partner interest was $10.5 million in the third quarter
of 2008. The current quarter minority interest balance reflects the impact of these adjusted
income allocations.
Equity Earnings of Unconsolidated Affiliates GrowHow
We recorded income of $42.1 million from our U.K. joint venture in the third quarter of 2008
as compared to $2.2 million in 2007. The improved performance of the joint venture is due to a
significant increase in product selling price and product volume due to market demand. The
2007 results only include the two-week period from formation of the joint venture on September
14, 2007 until September 30, 2007.
Income Taxes
Income taxes for the 2008 third quarter were recorded based on the estimated effective tax
rate for the individual jurisdictions in which Terra operates. The annual effective tax rates
were 26.9% and 36.6% in the quarters ended September 30, 2008 and 2007, respectively. The
decrease in 2008 rate of 9.7% was primarily due to income in foreign jurisdictions with lower
statutory tax rates compared to the United States. In addition, we utilized federal and state
tax credits of $13.2 million to reduce the estimated tax liability during 2008.
42
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 2007
Consolidated Results
We reported net income of $476.3 million for the 2008 first nine months compared with 2007
first nine months net income of $132.2 million. The 2007 net income includes a $38.8 million
($24.6 million, net of taxes) charge for the early retirement of debt. The net income increase
is primarily due to higher sales prices as a result of increased demand for nitrogen products,
specifically in the agricultural markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-months ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Sales |
|
|
Average |
|
|
Sales |
|
|
Average |
|
(quantities in thousands of tons) |
|
Volumes |
|
|
Unit Price (1) |
|
|
Volumes |
|
|
Unit Price (1) |
|
Ammonia (2) |
|
|
1,303 |
|
|
$ |
532 |
|
|
|
1,245 |
|
|
$ |
334 |
|
UAN (32% basis) (3) |
|
|
3,072 |
|
|
$ |
326 |
|
|
|
3,060 |
|
|
$ |
218 |
|
Urea |
|
|
75 |
|
|
$ |
422 |
|
|
|
88 |
|
|
$ |
305 |
|
Ammonium nitrate (2) |
|
|
539 |
|
|
$ |
339 |
|
|
|
499 |
|
|
$ |
243 |
|
|
|
|
(1) |
|
After deducting outbound freight costs. |
|
(2) |
|
2007 ammonia and ammonium nitrate sales volumes and prices have been adjusted to exclude
Terras UK operations for comparability to 2008 volumes and pricing. |
|
(3) |
|
The nitrogen content of UAN is 32% by weight. |
Product revenues for the nine months ended September 30, 2008 increased $430.0 million, or
24%, compared with the same 2007 nine months primarily due to higher sales prices for all
nitrogen products. The price increase is due to improved demand for nitrogen products. The
2007 first nine months revenues included $319.1 million from the UK. The UK operations were
contributed into the GrowHow UK Limited joint venture during the 2007 third quarter and its
results are classified as non-operating equity earnings.
Operating income for the 2008 first nine months was $663.1 million which was $342.5 million
more than the $320.6 million income in the 2007 first nine months. The first nine months of
2007 operating income includes $46.8 million of operating income from the former UK
operations, excluding this amount, North America operating income increased $389.3 million.
Higher nine month sales prices contributed $734.1 million to the 2008 first nine months
operating income. This increase was partially offset by increased costs of $369.7 million,
primarily as a result of higher gas costs and increased costs relating to purchased product
for resale. Natural gas costs, including the effects of forward price contracts, during 2008
and 2007 first nine months, were $8.74 per MMBtu and $6.95 per MMBtu, respectively. Increased
equity earnings contributed $35.3 million to the increase in operating income.
Discontinued Operations
We have reported our Beaumont, Texas operations as discontinued operations for the periods
ending September 30, 2008 and 2007. The Beaumont operations were included in our methanol
segment in prior periods. In connection with reporting discontinued operations, we have
determined that our methanol segment no longer meets the requirements of a reporting segment.
43
Minority Interest
Minority interest represents third-party interests in the earnings of the publicly held common
units of Terra Nitrogen Company, L.P. (TNCLP). The 2008 and 2007 amounts are directly related
to TNCLP earnings and losses. During the first nine months of 2008, the cumulative shortfall
of the Minimum Quarterly Distribution was satisfied which entitled us to increased income
allocations as provided for in the TNCLP Partnership Agreement. The current quarter minority
interest balance reflects the impact of these adjusted income allocations. Our increased
income allocation attributed to our General Partner interest was $26.1 million in the first
nine months of 2008.
Equity Earnings of Unconsolidated Affiliates GrowHow UK Limited
We recorded income of $89.0 million from our U.K. joint venture in the first nine months of
2008 as compared to $2.2 million in 2007. The improved performance of the joint venture is due
to a significant increase in price and volume due to market demand. The 2007 results only
include the two-week period from formation of the joint venture on September 14, 2007 until
September 30, 2007.
Income Taxes
Income taxes for the first nine months of 2008 were recorded based on the estimated annual
effective tax rate for the individual jurisdictions in which Terra operates. The annual
effective tax rates were 32.9% and 36.6% in the first nine months ended September 30, 2008 and
2007, respectively. The decrease in the effective rate is due primarily to gains in foreign
jurisdictions that have a lower statutory rate than the U.S. In addition, we utilized federal
and state tax credits of $13.2 million during the third quarter to reduce the estimated tax
liability.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which included $195.0 million related to customer prepayments,
totaled $680.7 million at September 30, 2008. Our primary uses of cash are to fund our
working capital requirements, make payments on our debt and other obligations and fund plant
turnarounds, dividends, capital expenditures and stock repurchases. The principal sources of
these cash outlays are cash flow from operations, cash on hand and, to the extent necessary,
borrowings under available bank facilities.
Net cash provided by continuing operations in the first nine months of 2008 was $196.0 million
and net cash provided by discontinuing operations was $9.4 million. Cash from continuing
operations was composed of $458.4 million of cash provided from operating activities, offset
by $262.4 million to fund seasonal working capital requirements.
During the first nine months, we funded capital and plant turnaround purchases of $70.1
million primarily for replacement or sustaining capital needs. We received $27.4 million from
GrowHow UK Limited for our contribution settlement from the joint venture. In April 2008 we
announced plans to expand the upgrading capacity at our Woodward, Oklahoma nitrogen
manufacturing facility. We expect the project to cost approximately $180 million and to be
completed by the end of 2010.
44
In May 2008, the Board authorized the repurchase of a maximum 12,841,717 shares, approximately
14% of our then outstanding common stock, on the open market in private transactions or
otherwise. During 2008, the repurchases under the stock buyback programs were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
Month of |
|
Number of |
|
|
Average |
|
|
Part of Publicly |
|
|
Shares that May Yet Be |
|
Share |
|
Shares |
|
|
Price Paid |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Purchases |
|
Purchased |
|
|
per Share |
|
|
Programs |
|
|
Plans or Programs |
|
May 2008 |
|
|
189,150 |
|
|
$ |
39.65 |
|
|
|
189,150 |
|
|
|
12,652,567 |
|
June 2008 |
|
|
|
|
|
|
|
|
|
|
189,150 |
|
|
|
12,652,567 |
|
July 2008 |
|
|
|
|
|
|
|
|
|
|
189,150 |
|
|
|
12,652,567 |
|
August 2008 |
|
|
772,180 |
|
|
|
45.91 |
|
|
|
961,330 |
|
|
|
11,880,387 |
|
September 2008 |
|
|
1,626,355 |
|
|
|
39.69 |
|
|
|
2,587,685 |
|
|
|
10,254,032 |
|
We paid dividends on the outstanding preferred shares of $3.8 million for the nine-month
periods ending September 30, 2008 and 2007. We paid dividends on the outstanding common stock
of $18.3 million for the nine-month period ending September 30, 2008. There were no common
stock dividends paid in 2007.
During the third quarter of 2008, we negotiated with individual holders of the Series A
Preferred Shares to induce conversion into our common stock. Holders of 117,900 Preferred
shares converted the shares into 11.8 million shares of our common stock and received $5.2
million in cash as an inducement payment.
Distributions paid to the minority TNCLP common unit holders in the first nine months of 2008
and 2007 were $56.6 million and $25.6 million, respectively. TNCLP distributions are based on
Available Cash as defined in the Partnership Agreement.
In February 2007, Terra Capital, Inc., (TCAPI) a subsidiary of Terra Industries Inc., issued
$330 million of 7.0% Senior Notes due 2017 to refinance our Senior Secured Notes due in 2008
and 2010. The notes are unconditionally guaranteed by Terra Industries Inc. and its U.S.
subsidiaries. These notes and guarantees are unsecured and will rank equal in right of payment
with any future senior obligations of such guarantors.
In conjunction with the bond refinancing, we amended the $200 million revolving credit
facility to extend the expiration date to January 31, 2012. Borrowing availability under the
credit facility is generally based on 100% eligible cash balances, 85% of eligible accounts
receivable and 60% of eligible inventory, less outstanding letters of credit. These facilities
include $50 million only available for the use of TNCLP, one of our consolidated subsidiaries.
At September 30, 2008, there were no outstanding revolving credit borrowings and there were
$6.6 million in outstanding letters of credit, resulting in remaining borrowing availability
of approximately $193.4 million under the facilities. We are required to maintain a combined
minimum unused borrowing availability of $30 million. The credit facility also requires that
we adhere to certain limitations on additional debt, capital expenditures, acquisitions,
liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of
business and transactions with affiliates. In addition, if our borrowing availability falls
below a combined $60 million, we are required to have generated $60 million of operating cash
flows, or earnings before interest, income taxes, depreciation, amortization and other
non-cash items (as defined in the credit facility) for the preceding four quarters.
Our ability to meet credit facility covenants will depend on future market conditions,
operating cash flows, working capital needs, receipt of customer prepayments and trade credit
terms. Failure to meet these covenants could result in additional costs and fees to amend the
credit facility or could result in termination of the facility. Based on current market
conditions for our finished products and natural gas,
we anticipate that we will be able to meet our covenants through 2008. If there were to be any
adverse changes in the factors discussed above, we may need a waiver of our credit facility
covenants, of which, there is no assurance that we would receive such waivers.
There were no material changes outside of the ordinary course of business to our contractual
obligations or off-balance sheet arrangements presented in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations of the Annual Report on Form 10-K
for the period ended December 31, 2007.
45
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from interest rates, foreign exchange
rates, natural gas prices and nitrogen prices. We manage our exposure to these and other
market risks through regular operating and financing activities and through the use of
derivative financial instruments. We intend to use derivative financial instruments as risk
management tools and not for speculative investment purposes. Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, of Terras Annual Report on Form 10-K for the year
ended December 31, 2007 provides more information as to the types of practices and instruments
used to manage risk. There were no material changes in our use of financial instruments during
the quarter ended September 30, 2008.
The volume of natural gas hedged varies from time to time based on managements judgment of
market conditions, particularly natural gas prices and prices for nitrogen products.
Management also considers our position related to forward fixed price sales contracts in
determining the level of derivatives necessary. Contracts were in place at September 30, 2008
to cover approximately 36% of our natural gas requirements for the succeeding twelve months.
Our ability to manage exposure to commodity price risk in the purchase of natural gas through
the use of financial derivatives may be affected by limitations imposed by our bank agreement
covenants.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their
evaluation as of the end of the period covered by this report, that our disclosure controls
and procedures are effective to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commissions rules and forms.
There were no significant changes in our internal control over financial reporting that
occurred during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
46
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in this report may constitute forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995. Forward-looking statements are based
upon the assumptions as to future events that may not prove to be accurate. These statements
are not guarantees of future performance and involve risks, uncertainties and assumptions that
are difficult to predict. Actual outcomes and results may differ materially from what is
expressed or forecasted in these forward-looking statements. As a result, these statements
speak only as of the date they were made and we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information, future events
or otherwise.
Words such as expects, intends, plans, projects, believes, estimates, and similar
expressions are used to identify these forward-looking statements. These include, among
others, statements relating to:
|
|
|
changes in financial markets, |
|
|
|
|
general economic conditions within the agricultural industry, |
|
|
|
|
competitive factors and price changes (principally, sales prices of nitrogen
products and natural gas costs), |
|
|
|
|
changes in product mix, |
|
|
|
|
changes in the seasonality of demand patterns, |
|
|
|
|
changes in weather conditions, |
|
|
|
|
changes in environmental and other government regulations, |
|
|
|
|
changes in agricultural regulations, and |
|
|
|
|
other risks detailed in Risk Factors in our 2007 Annual Report. |
Additional information as to these factors can be found in our 2007 Annual Report in the
sections entitled Business, Legal Proceedings, and Managements Discussion and Analysis
of Financial Condition and Results of Operations and in the Notes to our consolidated
financial statements included as part of this report.
47
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on our consolidated financial position, results of operations
or liquidity.
ITEM 1A. RISK FACTORS
There were no significant changes in our risk factors during the third quarter of 2008 as
compared to the risk factors identified in our 2007 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Company Purchases of Equity Securities
On May 6, 2008, the Board of Directors authorized us to repurchase up to 12,841,717 shares of
our outstanding common stock. The stock buyback program has been and will be conducted on the
open market, in private transactions or otherwise at such times prior to June 30, 2010, and at
such prices, as determined appropriate by us. During the 2008 third quarter, we repurchased
2,398,535 shares under the stock buyback program. The remaining number of shares that we are
authorized to repurchase is 10,254,032 at September 30, 2008.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
48
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The following table provides information about share repurchases by the Company during 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
Month of |
|
Number of |
|
|
Average |
|
|
Part of Publicity |
|
|
Shares that May Yet Be |
|
Share |
|
Shares |
|
|
Price Paid |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
Purchases |
|
Purchased |
|
|
per share |
|
|
Programs |
|
|
Plans or Programs |
|
May 2008 |
|
|
189,150 |
|
|
$ |
39.65 |
|
|
|
189,150 |
|
|
|
12,652,567 |
|
June 2008 |
|
|
|
|
|
|
|
|
|
|
189,150 |
|
|
|
12,652,567 |
|
July 2008 |
|
|
|
|
|
|
|
|
|
|
189,150 |
|
|
|
12,652,567 |
|
August 2008 |
|
|
772,180 |
|
|
|
45.91 |
|
|
|
961,330 |
|
|
|
11,880,387 |
|
September 2008 |
|
|
1,626,355 |
|
|
|
39.69 |
|
|
|
2,587,685 |
|
|
|
10,254,032 |
|
On May 6, 2008, the Board authorized the repurchase of a maximum of 12,841,717 shares,
approximately 14% of our then outstanding common stock on the open market. As of September 30,
2008, we have purchased a total of 2,587,685 shares, which resulted in 10,254,032 remaining
shares we are authorized to repurchase by June 30, 2010. There were no repurchases in the 2008
first quarter.
The calculation of the average price paid per share does not include the effect for any fees,
commissions or other costs associated with the repurchase of such shares.
49
ITEM 6. EXHIBITS
(a) Exhibits
|
|
|
Exhibit 31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 31.2
|
|
Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.1
|
|
Certification of the Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.2
|
|
Certification of the Senior Vice President and Chief Executive
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
50
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
TERRA INDUSTRIES INC.
|
|
Date: October 24, 2008 |
/s/ Daniel D. Greenwell
|
|
|
Daniel D. Greenwell |
|
|
Senior Vice President and Chief Financial Officer
and a duly authorized signatory |
|
|
51
EXHIBIT INDEX
|
|
|
Exhibit 31.1
|
|
Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 31.2
|
|
Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.1
|
|
Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.2
|
|
Certification of the Senior Vice President and Chief
Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
52